2016 ANNUAL REPORT OF THE BOARDS OF TRUSTEES OF THE FEDERAL HOSPITAL INSURANCE AND FEDERAL SUPPLEMENTARY MEDICAL INSURANCE TRUST FUNDS COMMUNICATION From THE BOARDS OF TRUSTEES, FEDERAL HOSPITAL INSURANCE AND FEDERAL SUPPLEMENTARY MEDICAL INSURANCE TRUST FUNDS Transmitting THE 2016 ANNUAL REPORT OF THE BOARDS OF TRUSTEES OF THE FEDERAL HOSPITAL INSURANCE AND FEDERAL SUPPLEMENTARY MEDICAL INSURANCE TRUST FUNDS
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2016 ANNUAL REPORT OF
THE BOARDS OF TRUSTEES OF THE
FEDERAL HOSPITAL INSURANCE AND
FEDERAL SUPPLEMENTARY MEDICAL INSURANCE
TRUST FUNDS
COMMUNICATION
From
THE BOARDS OF TRUSTEES,
FEDERAL HOSPITAL INSURANCE AND
FEDERAL SUPPLEMENTARY MEDICAL INSURANCE
TRUST FUNDS
Transmitting
THE 2016 ANNUAL REPORT OF
THE BOARDS OF TRUSTEES OF THE
FEDERAL HOSPITAL INSURANCE AND
FEDERAL SUPPLEMENTARY MEDICAL INSURANCE
TRUST FUNDS
LETTER OF TRANSMITTAL
__________
BOARDS OF TRUSTEES OF THE
FEDERAL HOSPITAL INSURANCE AND
FEDERAL SUPPLEMENTARY MEDICAL INSURANCE TRUST FUNDS,
Washington, D.C., June 22, 2016
HONORABLE PAUL D. RYAN,
Speaker of the House of Representatives
HONORABLE JOSEPH R. BIDEN, JR.,
President of the Senate
GENTLEMEN:
We have the honor of transmitting to you the 2016 Annual Report of the Boards of Trustees of the
Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust
Fund, the 51st such report.
Respectfully,
JACOB J. LEW, Secretary of the Treasury, and Managing Trustee of the Trust Funds.
THOMAS E. PEREZ, Secretary of Labor, and Trustee.
SYLVIA M. BURWELL, Secretary of Health and Human Services, and Trustee.
CAROLYN W. COLVIN, Acting Commissioner of Social Security, and Trustee.
VACANT, Public Trustee.
VACANT, Public Trustee.
ANDREW M. SLAVITT, Acting Administrator, Centers for Medicare & Medicaid Services, and Secretary, Boards of Trustees.
CONTENTS
I. INTRODUCTION................................................................................. 1 II. OVERVIEW ........................................................................................ 7
A. Highlights ........................................................................................ 7 B. Medicare Data for Calendar Year 2015 ....................................... 10 C. Medicare Assumptions ................................................................. 12 D. Financial Outlook for the Medicare Program ............................. 18 E. Financial Status of the HI Trust Fund ....................................... 25 F. Financial Status of the SMI Trust Fund ..................................... 32 G. Conclusion ..................................................................................... 42
III. ACTUARIAL ANALYSIS ............................................................... 45 A. Introduction ................................................................................... 45 B. HI Financial Status ...................................................................... 46
C. Part B Financial Status................................................................ 79 1. Financial Operations in Calendar Year 2015 .......................... 79 2. 10-Year Actuarial Estimates (2016-2025) ............................... 86 3. Long-Range Estimates .............................................................. 99
D. Part D Financial Status ............................................................. 100 1. Financial Operations in Calendar Year 2015 ........................ 101 2. 10-Year Actuarial Estimates (2016-2025) ............................. 105 3. Long-Range Estimates ............................................................ 112
IV. ACTUARIAL METHODOLOGY .................................................. 115 A. Hospital Insurance ..................................................................... 115 B. Supplementary Medical Insurance ............................................ 127
1. Part B ....................................................................................... 127 2. Part D ....................................................................................... 142
C. Private Health Plans .................................................................. 151 D. Long-Range Medicare Cost Growth Assumptions .................... 162
V. APPENDICES ................................................................................. 172 A. Medicare Amendments since the 2015 Report ......................... 172 B. Total Medicare Financial Projections ........................................ 179 C. Illustrative Alternative Projections ........................................... 193 D. Average Medicare Expenditures per Beneficiary ..................... 199 E. Medicare Cost-Sharing and Premium Amounts ....................... 202 F. Medicare and Social Security Trust Funds and the Federal
Budget .......................................................................................... 210 G. Infinite Horizon Projections ....................................................... 217 H. Fiscal Year Historical Data and Projections through 2025 ..... 224 I. Glossary ........................................................................................ 235 J. List of Tables ............................................................................... 255 J. List of Figures .............................................................................. 259 J. Statement of Actuarial Opinion ................................................. 260
1
I. INTRODUCTION
The Medicare program has two separate trust funds, the Hospital
Insurance Trust Fund (HI) and the Supplementary Medical Insurance
Trust Fund (SMI). HI, otherwise known as Medicare Part A, helps pay
for hospital, home health services following hospital stays, skilled
nursing facility, and hospice care for the aged and disabled. SMI
consists of Medicare Part B and Part D. Part B helps pay for physician,
outpatient hospital, home health, and other services for the aged and
disabled who have voluntarily enrolled. Part D provides subsidized
access to drug insurance coverage on a voluntary basis for all
beneficiaries and premium and cost-sharing subsidies for low-income
enrollees. Medicare also has a Part C, which serves as an alternative
to traditional Part A and Part B coverage. Under this option,
beneficiaries can choose to enroll in and receive care from private
Medicare Advantage and certain other health insurance plans.
Medicare Advantage and Program of All-Inclusive Care for the Elderly
(PACE) plans receive prospective, capitated payments for such
beneficiaries from the HI and SMI Part B trust fund accounts; the
other plans are paid from the accounts on the basis of their costs.
The Social Security Act established the Medicare Board of Trustees to
oversee the financial operations of the HI and SMI trust funds.1 The
Board has six members. Four members serve by virtue of their
positions in the Federal Government: the Secretary of the Treasury,
who is the Managing Trustee; the Secretary of Labor; the Secretary of
Health and Human Services; and the Commissioner of Social Security.
Two other members are public representatives whom the President
appoints and the Senate confirms. These positions are currently
vacant. The Administrator of the Centers for Medicare & Medicaid
Services (CMS) serves as Secretary of the Board.
The Social Security Act requires that the Board, among other duties,
report annually to the Congress on the financial and actuarial status
of the HI and SMI trust funds. The 2016 report is the 51st that the
Board has submitted.
The projections in this year’s report, with one exception related to
Part A, are based on current law; that is, they assume that laws on the
books will be implemented and adhered to with respect to scheduled
taxes, premium revenues, and payments to providers and health plans.
The one exception is that the projections disregard payment reductions
1The Social Security Act established separate boards for HI and SMI. Both boards have
the same membership, so for convenience they are collectively referred to as the
Medicare Board of Trustees in this report.
Overview
2
that would result from the projected depletion of the Medicare Hospital
Insurance trust fund. Under current law, payments would be reduced
to levels that could be covered by incoming tax and premium revenues
when the HI trust fund was depleted. If the projections reflected such
payment reductions, then any imbalances between payments and
revenues would be automatically eliminated, and the report would not
serve its essential purpose, which is to inform policy makers and the
public about the size of any trust fund deficits that would need to be
resolved to avert program insolvency. To date, lawmakers have never
allowed the assets of the Medicare HI trust fund to become depleted.
Projections of Medicare costs are highly uncertain, especially when
looking out more than several decades. One reason for uncertainty is
that scientific advances will make possible new interventions,
procedures, and therapies. Some conditions that are untreatable today
will be handled routinely in the future. Spurred by economic
incentives, the institutions through which care is delivered will evolve,
possibly becoming more efficient. While most health care technological
advances to date have tended to increase expenditures, the health care
landscape is shifting. No one knows whether future developments will,
on balance, increase or decrease costs.
While the physician payment updates and new incentives put in place
by the Medicare Access and CHIP Reauthorization Act of 2015
(MACRA) avoid the significant short-range physician payment issues
that would have resulted from the sustainable growth rate (SGR)
system approach, they nevertheless raise important long-range
concerns. In particular, additional payments of $500 million per year
for one group of physicians and 5-percent annual bonuses for another
group are scheduled to expire in 2025, resulting in a significant one-
time payment reduction for most physicians. In addition, the law
specifies the physician payment update amounts for all years in the
future, and these amounts do not vary based on underlying economic
conditions, nor are they expected to keep pace with the average rate of
physician cost increases. The specified rate updates could be an issue
in years when levels of inflation are high and would be problematic
when the cumulative gap between the price updates and physician
costs becomes large. The gap will continue to widen throughout the
projection, and the Trustees anticipate that physician payment rates
under current law will be lower than they would have been under the
SGR formula by 2048. Absent a change in the delivery system or level
of update by subsequent legislation, the Trustees expect access to
Medicare-participating physicians to become a significant issue in the
long term under current law.
Introduction
3
The Patient Protection and Affordable Care Act, as amended by the
Health Care and Education Reconciliation Act of 2010, introduced
large policy changes and additional projection uncertainty. This
legislation, referred to collectively as the Affordable Care Act or ACA,
contains roughly 165 provisions affecting the Medicare program by
trust fund depletion. In the year of asset depletion, which is projected
to be 2028 in this report, HI revenues are projected to cover 87 percent
of program costs.
The illustrative alternative shown in the top line of figure I.1 assumes
legislative changes that result in (i) physician payment updates that
transition from the 0-percent update specified in current law for 2025
to the rate of growth in the Medicare Economic Index (MEI) of
2.2 percent for 2040 and later; (ii) no expiration of the 5-percent
bonuses for physicians in alternative payment models; (iii) a partial
phase-out of the ACA reductions in Medicare payment rates from 2020
through 2034; and (iv) an elimination of the cost-reducing actions of
the Independent Payment Advisory Board (IPAB). The difference
between the illustrative alternative and the current-law projections
demonstrates that the long-range costs could be substantially higher
than shown throughout much of the report if the MACRA4 and ACA5
cost-reduction measures prove problematic and new legislation scales
them back.
As figure I.1 shows, Medicare’s costs under current law rise from their
current level of 3.6 percent of GDP to 5.6 percent in 2040 and to
6.0 percent in 2090. Under the illustrative alternative, in which
adherence to the MACRA and ACA cost-reducing measures erodes,
projected costs would rise to 6.2 percent of GDP in 2040 and to
9.1 percent in 2090.
As the preceding discussion explains, and as the substantial
differences between current-law and illustrative alternative
projections demonstrate, Medicare’s actual future costs are highly
uncertain for reasons apart from the inherent difficulty in projecting
health care cost growth over time. The Board recommends that readers
interpret the current-law estimates in the report as the result of the
outcomes that would be experienced under the Trustees’ economic and
4Under MACRA, a significant one-time payment reduction is scheduled for most
physicians in 2025. In addition, the law specifies physician payment rate updates of
0.75 percent or 0.25 percent annually thereafter. These updates are notably lower than
the projected physician cost increases, which are assumed to average 2.2 percent per
year in the long range. 5Under the ACA, Medicare’s annual payment rate updates for most categories of provider
services would be reduced below the increase in providers’ input prices by the growth in
economy-wide productivity (1.1 percent over the long range). In addition, the IPAB would
be charged with recommending cost savings as are necessary to hold overall per capita
Medicare growth to the average of the Consumer Price Index (CPI-U) and CPI-medical
care increases in 2015-2019 and to the rate of per capita GDP growth plus 1 percentage
point thereafter (subject to certain limits). Unless overridden by lawmakers, these
recommendations would be implemented automatically.
Overview
6
demographic assumptions if the productivity adjustments and IPAB
measures in the ACA and the physician price updates in MACRA can
be sustained in the long range. Readers are encouraged to review
appendix V.C for further information on this important subject. Where
applicable, the Trustees note the key financial outcomes under the
illustrative alternative projections in addition to the current-law
projections.
Highlights
7
II. OVERVIEW
A. HIGHLIGHTS
The major findings of this report under the intermediate set of
assumptions appear below. The balance of the Overview and the
following Actuarial Analysis section describe these findings in more
detail.
In 2015
In 2015, Medicare covered 55.3 million people: 46.3 million aged 65
and older, and 9.0 million disabled. Almost 32 percent of these
beneficiaries have chosen to enroll in Part C private health plans that
contract with Medicare to provide Part A and Part B health services.
Total expenditures in 2015 were $647.6 billion, and total income was
$644.4 billion, which consisted of $633.9 billion in non-interest income
and $10.5 billion in interest earnings. Assets held in special issue U.S.
Treasury securities decreased by $3.2 billion to $263.2 billion.
Short-Range Results
The estimated depletion date for the HI trust fund is 2028, 2 years
earlier than in last year’s report. As in past years, the Trustees have
determined that the fund is not adequately financed over the next
10 years. HI tax income and expenditures are projected to be lower
than last year’s estimates, mostly due to lower CPI assumptions. The
impact on expenditures is mitigated by lower productivity increases.
HI expenditures have exceeded income annually since 2008. However,
the Trustees project slight surpluses in 2016 through 2020, with a
return to deficits thereafter until the trust fund becomes depleted in
2028. In 2015, HI expenditures were financed with $267.1 billion in
non-interest income, $8.2 billion in interest paid to the HI trust fund
by the Treasury, and a $3.5-billion net redemption of trust fund assets
by the Treasury. The assets were $197.3 billion at the beginning of
2015, representing about 71 percent of expenditures during the year,
which is below the Trustees’ minimum recommended level of
100 percent. The HI trust fund has not met the Trustees’ formal test of
short-range financial adequacy since 2003 (as discussed in
section III.B). Growth in HI expenditures has averaged 2.4 percent
annually over the last 5 years, compared with non-interest income
growth of 5.8 percent. Over the next 5 years, projected annual growth
rates for expenditures and non-interest income are 5.4 percent and
6.0 percent, respectively.
Overview
8
The SMI trust fund is adequately financed over the next 10 years and
beyond because premium income and general revenue income for
Parts B and D are reset each year to cover expected costs and ensure a
reserve for Part B contingencies. A hold-harmless provision restricts
Part B premium increases for most beneficiaries in 2016; however, the
Bipartisan Budget Act of 2015 requires a transfer of funds from the
general fund to cover the premium income that is lost in 2016 as a
result of the provision. In 2017 there may be a substantial increase in
the Part B premium rate for some beneficiaries. (See sections II.F and
III.C for further details.)
Part B and Part D costs have averaged annual growth of 5.6 percent
and 7.7 percent, respectively, over the last 5 years, as compared to
growth of 3.7 percent for GDP. Under current law, the Trustees project
an average annual Part B growth rate of 6.9 percent over the next
5 years; for Part D, the estimated average annual increase in
expenditures for these 5 years is 10.6 percent. The projected average
annual rate of growth for the U.S. economy is 5.0 percent during this
period, significantly slower than for Part B and Part D.
General revenue funding (defined as the difference between Medicare’s
total outlays and its dedicated financing sources) is not estimated to
reach 45 percent of outlays in fiscal years 2016 through 2022.
Therefore, as was the case last year, the Trustees are not issuing a
determination of projected excess general revenue Medicare funding in
this report. Such determinations were previously made in each of the
2006 through 2013 reports.
Long-Range Results
For the 75-year projection period, the HI actuarial deficit has increased
from 0.68 percent of taxable payroll, as shown in last year’s report, to
0.73 percent of taxable payroll. (Under the illustrative alternative
projections, the HI actuarial deficit would be 1.85 percent of taxable
payroll, compared to 1.70 percent in last year’s report.) The
0.05 percent of payroll increase in the actuarial deficit was primarily
due to (i) lower taxable payroll and (ii) higher projected utilization of
inpatient hospital services than previously estimated.
Part B outlays were 1.6 percent of GDP in 2015, and the Board projects
that they will grow to about 2.4 percent by 2090 under current law.
The long-range projections as a percent of GDP are nearly the same as
those in last year’s report. (Part B costs in 2090 would be 4.0 percent
under the illustrative alternative scenario.)
The Board estimates that Part D outlays will increase from 0.5 percent
of GDP in 2015 to about 1.4 percent by 2090. These long-range outlay
Highlights
9
projections, as a percent of GDP, are slightly higher than those shown
in last year’s report.
Transfers from the general fund finance about three-quarters of SMI
costs and are central to the automatic financial balance of the fund’s
two accounts. Such transfers represent a large and growing
requirement for the Federal budget. SMI general revenues currently
equal 1.5 percent of GDP and would increase to an estimated
2.7 percent in 2090.
Conclusion
Total Medicare expenditures were $648 billion in 2015. The Board projects that expenditures will increase in future years at a faster pace than either aggregate workers’ earnings or the economy overall and that, as a percentage of GDP, they will increase from 3.6 percent in 2015 to 6.0 percent by 2090 (based on the Trustees’ intermediate set of assumptions). If the reduced price increases for physicians and other health services under Medicare are not sustained and do not take full effect in the long range as in the illustrative alternative projection, then Medicare spending would instead represent roughly 9.1 percent of GDP in 2090. Growth under any of these scenarios, if realized, would substantially increase the strain on the nation’s workers, the economy, Medicare beneficiaries, and the Federal budget.
The Trustees project that HI tax income and other dedicated revenues will fall short of HI expenditures in most future years. The HI trust fund does not meet either the Trustees’ test of short-range financial adequacy or their test of long-range close actuarial balance.
The Part B and Part D accounts in the SMI trust fund are adequately financed because premium income and general revenue income are reset each year to cover expected costs. Such financing, however, would have to increase faster than the economy to cover expected expenditure growth.
The financial projections in this report indicate a need for substantial steps to address Medicare’s remaining financial challenges. Consideration of further reforms should occur in the near future. The sooner solutions are enacted, the more flexible and gradual they can be. Moreover, the early introduction of reforms increases the time available for affected individuals and organizations—including health care providers, beneficiaries, and taxpayers—to adjust their expectations and behavior. The Trustees recommend that Congress and the executive branch work closely together with a sense of urgency to address the depletion of the HI trust fund and the projected growth in HI (Part A) and SMI (Parts B and D) expenditures.
Overview
10
B. MEDICARE DATA FOR CALENDAR YEAR 2015
HI (Part A) and SMI (Parts B and D) have separate trust funds, sources
of revenue, and categories of expenditures. Table II.B1 presents
Medicare data for calendar year 2015, in total and for each part of the
program. For fee-for-service Medicare, the largest category of Part A
expenditures is inpatient hospital services, while the largest Part B
expenditure category is physician services. Payments to private health
plans for providing Part A and Part B services currently represent
roughly 31 percent of total A and B benefit outlays.
Table II.B1.—Medicare Data for Calendar Year 2015 SMI
HI or Part A Part B Part D Total
Assets at end of 2014 (billions) $197.3 $68.1 $1.1 $266.4
Total income $275.4 $279.0 $90.0 $644.4
Payroll taxes 241.1 — — 241.1 Interest 8.2 2.3 0.0 10.5 Taxation of benefits 20.2 — — 20.2 Premiums 3.2 69.4 12.8 85.4 General revenue 1.0 203.9 68.4 273.3 Transfers from States — — 8.9 8.9 Other 1.6 3.4 — 5.0
Total expenditures $278.9 $279.0 $89.8 $647.6
Benefits 273.4 275.8 89.5 638.7 Hospital 141.7 46.5 — 188.3 Skilled nursing facility 29.8 — — 29.8 Home health care 6.6 11.1 — 17.7 Physician fee schedule services — 70.3 — 70.3 Private health plans (Part C) 78.5 93.8 — 172.3 Prescription drugs — — 89.5 89.5 Other 16.8 54.1 — 70.9
Demographic: Total fertility rate (children per woman)......................... 2.00 2.20 1.80 Annual percentage reduction in total
age-sex adjusted death rates .................................... 0.72 0.41 1.03 Net annual immigration ................................................. 1,245,000 1,570,000 950,000
Health cost growth: Annual percentage change in per beneficiary
Medicare expenditures (excluding demographic impacts)1 HI (Part A) .................................................................. 3.7 3 3
SMI Part B ................................................................. 3.6 3 3
SMI Part D ................................................................. 4.5 3 3
Total Medicare ........................................................... 3.8 3 3 1The assumed ultimate increases in per capita GDP and per beneficiary Medicare expenditures can also be expressed in real terms, adjusted to remove the impact of assumed inflation. When adjusted by the chain-weighted GDP price index, assumed real per capita GDP growth under the intermediate assumptions is 1.6 percent, and real per beneficiary Medicare cost growth is 1.5 percent, 1.3 percent, and 2.3 percent for Parts A, B, and D, respectively. 2Private nonfarm business multifactor productivity is published by the Bureau of Labor Statistics and is used as the economy-wide private nonfarm business multifactor productivity to adjust certain provider payment updates. 3See section III.B3 for further explanation of the Part A alternative (low-cost and high-cost) assumptions. Long-range alternative projections are not prepared for Parts B and D.
Other assumptions are specific to Medicare. As with all of the
assumptions underlying the financial projections, the Trustees review
the Medicare-specific assumptions annually and update them based on
the latest available data and analysis of trends. In addition, the
assumptions and projection methodology are subject to periodic review
by independent panels of expert actuaries and economists. The most
recent review occurred with the 2010-2011 Technical Review Panel on
the Medicare Trustees Report.7
Section IV.D describes the methodology used to derive the long-range
cost growth assumptions, which are based on the “factors contributing
to growth” model and are developed for the following four categories of
provider services:
7The Panel’s final report is available at http://aspe.hhs.gov/health/reports/2013/
MedicareTech/TechnicalPanelReport2010-2011.pdf. The Secretary of Health and
Human Services announced the reestablishment of the Technical Review Panel on the
Medicare Trustees Report in the February 19, 2016 Federal Register.
Notes: 1. Price reflects annual updates, multifactor productivity reductions, and any other reductions required by law or regulation.
2. Volume and intensity is the residual after the other four factors shown in the table (CPI, excess Medicare price, number of beneficiaries, and beneficiary age/gender mix) are removed.
3. Totals do not necessarily equal the sums of rounded components.
Most beneficiaries have the option to enroll in private health insurance
plans that contract with Medicare to provide Part A and Part B medical
services. The share of Medicare beneficiaries in such plans has risen
rapidly in recent years; it reached 31.7 percent in 2015 from
12.8 percent in 2004. Plan costs for the standard benefit package can
be significantly lower or higher than the corresponding cost for
beneficiaries in the traditional or fee-for-service Medicare program.
Prior to the ACA, private plans were generally paid a higher average
amount, and they used the additional payments to reduce enrollee cost-
sharing requirements, provide extra benefits, and/or reduce Part B and
Part D premiums. These enhancements were valuable to enrollees but
also resulted in higher Medicare costs overall and higher premiums for
all Part B beneficiaries, not just those enrolled in Medicare Advantage
plans. The ACA requires a phase-in from 2012 through 2017 of
payments to plans that are based on benchmarks that range from 95
to 115 percent of local fee-for-service Medicare costs, with bonus
amounts payable for plans meeting high quality-of-care standards.15
As was the case last year, the Trustees project that the overall
participation rate for private health plans will continue to increase
from more than 32 percent in 2016 to about 35 percent in 2022 and
thereafter.
Figure II.D2 shows the past and projected amounts of Medicare
revenues under current law excluding interest income, which will not
15Prior to the ACA, the benchmark range was generally 100 to 140 percent of fee-for-
service costs.
Medicare Financial Outlook
21
be a significant part of program financing in the long range as trust
fund assets decline. The figure compares total Medicare expenditures
to Medicare non-interest income—from HI payroll taxes, HI income
from the taxation of Social Security benefits, HI and SMI premiums,
SMI Part D State transfers for certain Medicaid beneficiaries, fees
under the ACA on manufacturers and importers of brand-name
prescription drugs (allocated to Part B), and HI and SMI statutory
general revenues. For 2016, the Trustees expect total Medicare
expenditures to continue to exceed non-interest revenue, but by only a
very small margin due to the revenue increasing more rapidly than
expenditures. A deficit is expected for 2017, and then modest surpluses
are projected for 2018 through 2020. Deficits are expected to return in
2021 and to remain for the balance of the projection, as expenditures
grow faster than revenue.
Figure II.D2.—Medicare Sources of Non-Interest Income and Expenditures as a Percentage of the Gross Domestic Product
Note: Percentages are affected by economic cycles.
As shown in figure II.D2, for most of the historical period, payroll tax
revenues increased steadily as a percentage of GDP due to increases in
the HI payroll tax rate and in the limit on taxable earnings, the latter
of which lawmakers eliminated in 1994. Under the ACA, beginning in
2013 the HI trust fund receives an additional 0.9-percent tax on
Overview
22
earnings in excess of a threshold amount.16 The Trustees project that,
as a result of this provision, payroll taxes will grow slightly faster than
GDP.17 HI revenue from income taxes on Social Security benefits will
gradually increase as a share of GDP as the share of benefits subject
to such taxes increases.
The Trustees expect growth in SMI Part B and Part D premiums and
general fund transfers to continue to outpace GDP growth and HI
payroll tax growth in the future. This phenomenon occurs primarily
because SMI revenue increases at the same rate as expenditures,
whereas HI revenue does not. Accordingly, as the HI sources of revenue
become increasingly inadequate to cover HI costs, SMI revenues will
represent a growing share of total Medicare revenues. Beginning in
2009, as HI payroll tax receipts declined due to the recession and
general revenue transfers increased, the latter income source became
the largest single source of income to the Medicare program as a whole.
General revenue transfers to the Part B account will increase
significantly in 2016, as required by the Bipartisan Budget Act of 2015
to compensate for premium revenue that will not be received in 2016
due to the hold-harmless provision. After decreasing from 2016 to 2017,
general revenues will gradually increase as a share of Medicare
financing from 2017 through 2029 and grow to about 48 percent by
2030, stabilizing thereafter. Growth in general revenue financing as a
share of GDP adds significantly to the Federal budget pressures. SMI
premiums will also grow in proportion to general revenue transfers,
placing a growing burden on beneficiaries. For high-income enrollees,
SMI premiums began to increase more rapidly in 2011 and will
continue to do so as a result of ACA provisions that increase Part D
premiums and freeze the income thresholds used to determine Part B
and Part D income-related premiums for 2011-2019. MACRA contains
16The ACA also specifies that individuals with incomes greater than $200,000 per year
and couples above $250,000 pay an additional Medicare contribution of 3.8 percent on
some or all of their non-work income (such as investment earnings). However, the
revenues from this tax are not allocated to the Medicare trust funds. 17Although the Trustees expect total worker compensation to grow at the same rate as
GDP, wages and salaries would increase more slowly and fringe benefits (health
insurance costs in particular) more rapidly. Thus, taxable earnings would gradually
decline as a percentage of GDP. Absent any change to the tax rate scheduled under
current law, HI payroll tax revenue would similarly decrease as a percentage of GDP
(since fringe benefits are not subject to this tax). Over time, however, a growing
proportion of workers will exceed the fixed earnings thresholds specified in the ACA
($200,000 and $250,000) and will become subject to the additional 0.9-percent HI payroll
tax. The net effect of these factors is an increasing trend in payroll taxes as a percentage
of GDP. See section V.C7 of the 2016 OASDI Trustees Report for more detailed
information on the projection of income from taxation of Social Security benefits.
Medicare Financial Outlook
23
further provisions that affect the income-related premium thresholds
and that will result in more premium income to Part B and Part D.
The interrelationship between the Medicare program and the Federal
budget is an important topic—one that will become increasingly
critical over time as the general revenue requirements for SMI
continue to grow. Transfers from the general fund are the major source
of financing for the SMI trust fund and are central to the automatic
financial balance of the fund’s two accounts, while representing a large
and growing requirement for the Federal budget. SMI general
revenues currently equal 1.5 percent of GDP and will increase to an
estimated 2.7 percent in 2090 under current law. Moreover, in the
absence of legislation to address the financial imbalance, interest
earnings on trust fund assets and redemption of those assets will cover
the difference between HI dedicated revenues and expenditures until
2028.18 Both of these financial resources for the HI trust fund require
cash transfers from the general fund of the Treasury, representing a
draw on other Federal resources. In 2027, these transactions would
require general fund transfers equal to 0.2 percent of GDP. Appendix F
describes the interrelationship between the Federal budget and the
Medicare and Social Security trust funds; it illustrates the programs’
long-range financial outlook from both a trust fund perspective and a
budget perspective.
The law requires the Board of Trustees to test whether the difference
between program outlays and dedicated financing sources19 exceeds
45 percent of Medicare outlays under current law. If this level is
attained within the first 7 fiscal years of the projection, Federal law
requires a determination of projected excess general revenue Medicare
funding. The Trustees made such determinations in the 2006 through
2013 reports. For this year’s report the difference between program
outlays and dedicated revenues is not expected to exceed 45 percent in
fiscal years 2016 through 2022 (the first 7 years of the projection), and
therefore the Trustees are not issuing this determination. (Section V.B
contains additional details on these tests.)
The ACA requires the Independent Payment Advisory Board (IPAB) to
submit proposals to the President the year following a determination
that the projected rate of growth in Medicare spending per beneficiary
18After asset depletion in 2028, as described in section II.E, no provision exists to use
general revenues or any other means to cover the HI deficit. 19The dedicated financing sources are HI payroll taxes, the HI share of income taxes on
Social Security benefits, Part B receipts from the new fees on manufacturers and
importers of brand-name prescription drugs, Part D State transfers, and beneficiary
premiums. These sources are the first four layers depicted in figure II.D2.
Overview
24
exceeds a target growth rate. Since 2013, the Chief Actuary at CMS
has been required to determine the projected and target growth rates.
If the Chief Actuary makes a determination that the projected
Medicare per capita growth rate exceeds the per capita target growth
rate in the implementation year, the Chief Actuary is required to
establish a savings target for that year. As in prior years, the 2016
determination is that the target growth rate has not been exceeded.
(Section V.B contains further details on the targets and projected
growth rates.)
This section has summarized the total financial obligation posed by
Medicare and the manner in which it is financed. However, the HI and
SMI components of Medicare have separate and distinct trust funds,
each with its own sources of revenues and mandated expenditures.
Accordingly, it is necessary to assess the financial status of each
Medicare trust fund separately. Sections II.E and II.F present such
assessments for the HI trust fund and the SMI trust fund, respectively.
HI Financial Status
25
E. FINANCIAL STATUS OF THE HI TRUST FUND
1. 10-Year Actuarial Estimates (2016-2025)
Expenditures from the HI trust fund have exceeded income each year
since 2008, with the fund deficit amounting to $3.5 billion in 2015. As
a result of recently enacted legislation and the assumed continuation
of the economic recovery, the Trustees project that HI income (which
includes payments from the general fund) will exceed expenditures by
about $1.3 billion in 2016 and that trust fund surpluses will continue
for the next 4 years. Deficits are projected to return beginning in 2021
and to persist for the remainder of the projection period. Beginning in
2021, payment of expenditures in full and on time will continue to
require redemption of trust fund assets until the trust fund’s depletion
in 2028.
Table II.E1 presents the projected operations of the HI trust fund
under the intermediate assumptions for the next decade. At the
beginning of 2016, HI assets represented 67 percent of annual
expenditures. This ratio has declined from 150 percent since 2007. The
Board has recommended an asset level at least equal to annual
expenditures, to serve as an adequate contingency reserve in the event
of adverse economic or other conditions.
The Trustees apply an explicit test of short-range financial adequacy,
described in section III.B2 of this report. Based on the 10-year
projection shown in table II.E1, the HI trust fund does not meet this
test because estimated assets are below 100 percent of annual
expenditures and are not projected to attain this level under the
intermediate assumptions. This outlook indicates the need for prompt
legislative action to achieve financial adequacy for the HI trust fund
throughout the short-range period.
Overview
26
Table II.E1.—Estimated Operations of the HI Trust Fund under Intermediate Assumptions, Calendar Years 2015-2025
2025 470.1 499.8 −29.6 137.7 33 1Includes interest income. 2Ratio of assets in the fund at the beginning of the year to expenditures during the year. 3Figures for 2015 represent actual experience.
Note: Totals do not necessarily equal the sums of rounded components.
The short-range financial outlook for the HI trust fund has worsened
as compared to the projections in last year’s annual report. This result
is driven largely by lower income in all years due to the lower CPI
assumptions. The lower CPI assumptions also reduce expenditures,
but in the early years of the projection this reduction is largely offset
by lower economy-wide productivity increases.
Under the intermediate assumptions, the assets of the HI trust fund
would continue decreasing as a percentage of annual expenditures
throughout the short-range projection period, as illustrated in
figure II.E1. After 2020 the ratio starts to decline quickly until the fund
is depleted in 2028, 2 years earlier than the date projected last year. If
assets were depleted, Medicare could pay health plans and providers
of Part A services only to the extent allowed by ongoing tax revenues—
and these revenues would be inadequate to fully cover costs.
Beneficiary access to health care services would rapidly be curtailed.
To date, Congress has never allowed the HI trust fund to become
depleted.
HI Financial Status
27
Figure II.E1.—HI Trust Fund Balance at Beginning of Year as a Percentage of Annual Expenditures
0%
50%
100%
150%
200%
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035
Beginning of January
EstimatedHistorical
There is substantial uncertainty in the economic, demographic, and
health care projection factors for HI trust fund expenditures and
revenues. Accordingly, the date of HI trust fund depletion could differ
substantially in either direction from the 2028 intermediate estimate.
Under the low-cost assumptions, trust fund assets would increase
throughout the entire projection period. Under the high-cost
assumptions, however, asset depletion would occur in 2022.
2. 75-Year Actuarial Estimates (2016-2090)
Each year, the Board prepares 75-year estimates of the financial and
actuarial status of the HI trust fund. Although financial outcomes are
inherently uncertain, particularly over periods as long as 75 years,
such estimates are helpful for assessing the trust fund’s long-term
financial condition.
Due to the difficulty in comparing dollar values for different periods
without some type of relative scale, the Trustees show income and
expenditure amounts relative to the earnings in covered employment
that are taxable under HI (referred to as taxable payroll). The ratio of
HI income (including payroll taxes, income from taxation of Social
Security benefits, premiums, general revenue transfers for uninsured
beneficiaries, and monies from fraud and abuse control activities, but
Overview
28
excluding interest income) to taxable payroll is called the income rate,
and the ratio of expenditures to taxable payroll is the cost rate.20
The standard HI payroll tax rate is scheduled to remain constant at
2.90 percent (for employees and employers, combined). In addition,
starting in 2013, high-income workers pay an additional 0.9 percent of
their earnings above $200,000 (for single workers) or $250,000 (for
married couples filing joint income tax returns). Since these income
thresholds are not indexed, over time an increasing proportion of
workers and their earnings will become subject to the additional HI tax
rate. (By the end of the long-range projection period, an estimated
79 percent of workers would be subject to this tax.) Thus, HI payroll
tax revenues will increase steadily as a percentage of taxable payroll.
HI income from taxation of Social Security benefits will also increase
faster than taxable payroll because the income thresholds determining
taxable benefits are not indexed for price inflation.
There are certain uninsured beneficiaries21 who are not entitled to HI
coverage based on their work history but are eligible through special
statutes. The benefits and administrative costs for these uninsured
beneficiaries are financed through general revenue transfers and
premium payments, rather than through payroll taxes. In past
Trustees Reports, income and costs associated with uninsured
beneficiaries were included in the HI cash projections but not in the
incurred projections. To better align the HI cash and incurred
projections, for the first time in this year’s report, the Trustees have
included the income and costs for uninsured beneficiaries in the
incurred projections.
The cost rate declined for 2014 and 2015 and is projected to continue
to decline through 2018, largely due to (i) expenditure growth that was
constrained in part by the sequester and low payment updates and
(ii) a rebound of taxable payroll growth from 2007-2009 recession
levels. After 2018 the cost rate is projected to rise primarily due to
retirements of those in the baby boom generation and partly due to a
projected return to modest health services cost growth. This cost rate
increase is moderated by the accumulating effect of the productivity
adjustments to provider price updates, which are estimated to reduce
annual HI per capita cost growth by an average of 0.9 percent through
20The Trustees estimate these costs on an incurred basis. 21HI beneficiaries who do not have 40 quarters of covered earnings but are entitled to HI
coverage either because (i) they were deemed additional wage credits during the
transitional periods when the HI program began or when it was expanded to cover
Federal employees, or because (ii) they pay a monthly premium that is intended to cover
their full cost.
HI Financial Status
29
2025 and 1.1 percent thereafter. After 25, 50, and 75 years, for
example, the prices paid to HI providers under current law would be
24 percent, 43 percent, and 57 percent lower, respectively, than prices
absent the productivity reductions.
Figure II.E2 shows projected income and cost rates under the
intermediate assumptions. As indicated, projected HI expenditures
continue to exceed non-interest income for 2015. Thereafter, the cost
rate is expected to exceed the income rate for all future years. The HI
cost rate increases more rapidly than the income rate through about
2045. The projected annual deficits expressed as a share of taxable
payroll increase from a negligible percentage in 2018 to a high of
1.04 percent in 2043 and then gradually decrease to 0.71 percent by
the end of the projection period. The convergence of growth rates for
income and costs reflects the continuing effects of the slower payment
rate updates under the ACA, assumed decelerating growth in the
volume and intensity of services, and the increasing portion of earnings
that are subjected to the additional 0.9-percent payroll tax. The
percentage of expenditures covered by non-interest income is projected
to decrease from 87 percent in 2028 to 79 percent in 2040 and then to
increase to about 86 percent by the end of the projection period. (Under
the illustrative alternative, the expenditures covered by non-interest
income are projected to decline from 85 percent in 2028 to 71 percent
in 2040 and then to decrease to about 53 percent by the end of the
projection period.)
Figure II.E2 shows that expenditures are projected to exceed tax
income in 2016. The projected excess of costs over income from 2016 to
2028 is covered by interest earnings and the redemption of trust fund
assets. Both of these sources of trust fund financing require transfers
from the general fund of the Treasury.
Overview
30
Figure II.E2.—Long-Range HI Non-Interest Income and Cost as a Percentage of Taxable Payroll, Intermediate Assumptions
1Includes interest income. 2Figures for 2015 represent actual experience. 3Section 708 of the Social Security Act modifies the provisions for the payment of Social Security benefits when the regularly designated day falls on a Saturday, Sunday, or legal public holiday. Payment of those benefits normally due January 3, 2016 actually occurred on December 31, 2015. Consequently, the Part B and Part D premiums withheld from these benefits and the associated Part B general revenue contributions were added to the respective Part B (about $7.5 billion) or Part D (about $0.2 billion) account on December 31, 2015. Similarly, the payment date for those benefits normally due January 3, 2021 will be December 31, 2020, and accordingly an estimated $13.9 billion will be added to the Part B account, and an estimated $0.4 billion will be added Part D account, on December 31, 2020.
Due to the nature of Part B financing, Part B income growth is
normally quite close to expenditure growth. The 2015 financing was
inadequate to provide for the 2015 expenditures, and as a result assets
Overview
34
fell below the customary range.25,26 The financing for 2016, including a
transfer from the general fund of the Treasury provided for by the
Bipartisan Budget Act of 2015 (BBA), is projected to restore the assets
held in the Part B account to this range at the end of 2016. For 2017
and later, financing levels and assets are expected to maintain an
adequate contingency reserve.
In 2016 the monthly Part B premium rate is $121.80, which is $16.90
higher than the 2015 monthly premium of $104.90. For determining
an individual’s monthly premium rate, there is a hold-harmless
provision in the law that limits the dollar increase in the premium to
the dollar increase in an individual’s Social Security benefit. This
provision applies to most beneficiaries who have their premiums
deducted from their Social Security benefits, or roughly 70 percent of
Part B enrollees in 2016.27 Because the cost-of-living adjustment
(COLA) for Social Security benefits is 0.0 percent for 2016, premiums
did not increase from the 2015 level for those beneficiaries to whom the
provision applies. Without the BBA, Part B premiums for other
beneficiaries would have been raised substantially to offset premiums
forgone as a result of the hold-harmless provision, to prevent asset
exhaustion, and to maintain a contingency reserve that accommodates
normal financial variation. However, the BBA specified that the Part B
premium be determined as if the hold-harmless provision did not apply
and that a transfer be made from the general fund of the Treasury to
the Part B account of the SMI trust fund in the amount of the estimated
forgone premiums (and that the transfer be treated as premiums for
matching purposes).
The BBA further requires that, starting in 2016, the Part B premium
otherwise determined be increased by $3.00, which is to be collected
and repaid to the general fund of the Treasury. The additional
repayment premium amounts will continue until the balance due
(defined in the BBA as the transfer to the Part B account from the
25The traditional measure used to evaluate the status of the Part B account of the SMI
trust fund is defined as the ratio of the excess of Part B assets over Part B liabilities to
the next year’s Part B incurred expenditures. The customary range for this ratio is 15 to
20 percent; the CMS Office of the Actuary developed this range based on private health
insurance standards and past studies indicating that this asset reserve level is sufficient
to protect against adverse events. 26Assets at the end of 2015 appear to be in the customary range, but only because about
$7.5 billion of income for 2016 was received on December 31, 2015. 27About 30 percent of Part B enrollees are not eligible for the hold-harmless provision.
This group consists of new enrollees during the year, enrollees who do not receive Social
Security benefit checks, enrollees with high incomes who are subject to the income-
related premium adjustment, and dual Medicare-Medicaid beneficiaries (whose
premiums are paid by State Medicaid programs).
SMI Financial Status
35
general fund plus forgone income-related premiums) has been repaid.28
If the COLA for Social Security is 0.0 percent for 2017, then an
additional transfer will also apply for 2017, causing an additional $3.00
repayment amount to be included in subsequent premiums.
Under the intermediate assumptions, the 2017 Social Security COLA
is 0.2 percent. The BBA provisions do not apply under these
assumptions, but the COLA is not large enough to allow for full
payment of the estimated 2017 premium by those Part B enrollees
subject to the hold-harmless provision. As a result, Part B premiums
for other beneficiaries need to be raised substantially, and the
estimated monthly premium for 2017 is therefore $149.00.29
The projected short-range Part B and total SMI expenditures shown in
table II.F1 are lower than the corresponding amounts in the 2015
Trustees Report. Among the reasons are slightly lower-than-expected
actual spending in 2015 for many types of services and lower
projections for general price inflation.
The Medicare prescription drug benefit began full operation in 2006.
For the 10-year period 2016 to 2025, the Trustees project that income
and expenditures for the Part D account will grow at an average
annual rate of 9.2 percent, due to expected further increases in
enrollment and growth in per capita drug costs. As with Part B, income
and outgo would remain in balance as a result of the annual
adjustment of premium and general revenue income to cover costs. The
appropriation for Part D general revenues has generally been set such
that amounts can be transferred to the Part D account on an as-needed
basis; under this process, there is no need to maintain a contingency
reserve. In September 2015, a new policy was implemented to transfer
amounts from the Treasury into the account 5 business days before the
benefit payments to the plans. This transfer occurred again in
February 2016 and is expected to occur consistently thereafter. As a
result, the Trustees expect the Part D account to include a more
substantial balance at the end of most months to reflect the new policy.
After 2015, the projected Part D costs shown in table II.F1 and
elsewhere in this report are higher than those in the 2015 report. The
28In the final repayment year, the additional amount may be less than $3.00 in order to
avoid overpayments. 29If the Social Security COLA were 0.0 percent (so that the BBA provisions would apply)
or large enough to allow all Part B enrollees to pay the full 2017 premium, then the
estimated 2017 premium would be roughly the same as the 2016 premium of $121.80.
This amount includes the increase in premium to repay the general fund under the BBA,
as the margin included in the 2016 Part B financing is projected to be adequate to absorb
most of the additional repayment.
Overview
36
difference is primarily attributable to a higher projected drug cost
trend, particularly for certain high-cost specialty drugs.
The primary test of financial adequacy for Parts B and D pertains to
the level of the financing established for a given period (normally,
through the end of the current calendar year). The financing for each
part of SMI is considered satisfactory if it is sufficient to fund all
services, including benefits and administrative expenses, provided
through a given period. In addition, to protect against the possibility
that cost increases under either part of SMI will be higher than
expected, the accounts of the trust fund would normally need assets
adequate to cover a reasonable degree of variation between actual and
projected costs. For Part B, as stated previously, the Trustees estimate
that the financing established through December 2016, including the
transfer required by the BBA, will be sufficient to cover benefits and
administrative costs incurred through that time period and that assets
will be adequate to cover potential variations in costs as a result of new
legislation or cost growth factors that exceed expectations. The
estimated financing established for Part D, together with the flexible
appropriation authority for this trust fund account, would be sufficient
to cover benefits and administrative costs incurred through 2016.
The amount of the contingency reserve needed in Part B is normally
much smaller (both in absolute dollars and as a fraction of annual
costs) than in HI or OASDI. A smaller reserve is adequate because the
premium rate and corresponding general revenue transfers for Part B
are determined annually based on estimated future costs, while the HI
and OASDI payroll tax rates are fixed under law and are therefore
much more difficult to adjust should circumstances change. A statutory
competitive bidding process establishes Part D revenues annually to
cover estimated costs. Moreover, the flexible appropriation authority
established by lawmakers for Part D allows additional general fund
financing if costs are higher than anticipated.
2. 75-Year Actuarial Estimates (2016-2090)
Figure II.F1 shows past and projected total SMI expenditures and
premium income as a percentage of the Gross Domestic Product (GDP).
Annual SMI expenditures grew from about 1.2 percent of GDP in 2005
to 1.6 percent of GDP in 2006 with the commencement of prescription
drug coverage, and in 2015 they amounted to 2.1 percent of GDP.
Under current law, SMI expenditures would grow to about 3.5 percent
of GDP within 25 years and to 3.8 percent by the end of the projection
period. (Under the illustrative alternative, total SMI expenditures in
2090 would be 5.4 percent of GDP.)
SMI Financial Status
37
Figure II.F1.—SMI Expenditures and Premiums as a Percentage of the Gross Domestic Product
0%
1%
2%
3%
4%
5%
1960 1980 2000 2020 2040 2060 2080 2100 2120
Calendar year
Total expenditures
Historical Estimated
B
Totalpremiums
Part B expenditures
Part D expenditures
D
Note: Percentages are affected by economic cycles.
3. Implications of SMI Cost Growth
Financing for the SMI trust fund is adequate because beneficiary
premiums and general revenue contributions, for both Part B and
Part D, are established annually to cover the expected costs for the
upcoming year. Should actual costs exceed those anticipated when the
financing is determined, future financing rates can include
adjustments to recover the shortfall. Likewise, should actual costs be
less than those anticipated, the savings would result in lower future
financing rates. As long as the future financing rates continue to cover
the following year’s estimated costs, both parts of the SMI trust fund
will remain financially solvent.
A critical issue for the SMI program is the impact of the rapid growth
of SMI costs, which places steadily increasing demands on
beneficiaries and taxpayers. This section compares the past and
projected growth in SMI costs with GDP growth; it also assesses the
implications of the rapid growth on beneficiaries and the budget of the
Federal Government.
Table II.F2 compares the growth in SMI expenditures with that of the
economy as a whole. SMI costs are projected to continue to outpace
growth in GDP but at a slower rate compared to the last 10 years. The
relatively high growth during the period 2016-2025 is due to the
Overview
38
continuing retirement of the baby boom generation, further economic
recovery, and modest increases in cost trends. Growth rates are
projected to decline during the 2026-2040 period primarily as a result
of a deceleration in beneficiary population growth. For the last 50 years
of the projection period, cost growth moderates further due to the
continued deceleration in beneficiary population growth and lower
ultimate growth rate assumptions. On a per capita basis, SMI
expenditure growth has substantially exceeded GDP growth
historically, but it is projected to slow and increase at approximately
the same rate as GDP after 2050 as a result of several legislatively
specified payment updates, including physician prices.
Table II.F2.—Average Annual Rates of Growth in SMI and the Economy [In percent]
Intermediate estimates: 2016-2025 2.7 5.0 7.8 0.9 3.9 4.8 2.9 2026-2040 1.3 4.7 6.1 0.7 3.7 4.4 1.6 2041-2065 0.6 4.0 4.6 0.5 3.9 4.4 0.2 2066-2090 0.7 3.8 4.5 0.5 3.9 4.3 0.2 1Excess of total SMI expenditure growth above total GDP growth, calculated as a multiplicative differential. 2Includes the addition of the prescription drug benefit to the SMI program in 2006. Excluding 2006, the average annual per capita expenditure increase is 3.6 percent, the total expenditure increase is 6.3 percent, and the growth differential is 3.3 percent.
As SMI per capita benefits grow faster than average income or per
capita GDP, the premiums and coinsurance amounts paid by
beneficiaries represent a growing share of their total income.
Figure II.F2 compares past and projected growth in average benefits
for SMI versus Social Security. The figure also shows amounts for the
average SMI premium payments and average cost-sharing payments.
To facilitate comparison across long time periods, all values are in
constant 2015 dollars.
Over time, the average Social Security benefit tends to increase at
about the rate of growth in average earnings. Health care costs
generally reflect increases in the earnings of health care professionals,
growth in the utilization and intensity of services, and other medical
cost inflation. As indicated in figure II.F2, average SMI benefits in
1970 were only about one-twelfth the level of average Social Security
benefits but had grown to more than one-third by 2005. With the
introduction of the Part D prescription drug benefit in 2006, this ratio
grew to almost one-half. Under the intermediate projections, SMI
benefits would continue increasing at a faster rate and would represent
SMI Financial Status
39
about three-fourths of the average Social Security retired-worker
benefit in 2090.
Figure II.F2.—Comparison of Average Monthly SMI Benefits, Premiums, and Cost-Sharing to the Average Monthly Social Security Benefit
[Amounts in constant 2015 dollars]
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
1970 1985 2000 2015 2030 2045 2060 2075 2090 2105
Historical Estimated
AverageSMI benefit
AverageSS benefit
Total SMI out-of-pocket
Average SMIpremium
Average SMIcost sharing
Average beneficiary premiums and cost-sharing payments for SMI will
increase at about the same rate as average SMI benefits.30 Thus, a
growing proportion of most beneficiaries’ Social Security and other
income would be necessary over time to pay total out-of-pocket costs
for SMI, including both premiums and cost-sharing amounts. Most
SMI enrollees have other income in addition to Social Security benefits.
Other possible sources include earnings from employment, employer-
sponsored pension benefits, and investment earnings. In addition,
most draw down their accumulated assets to supplement their income
in retirement. For simplicity, the comparisons in figure II.F2 apply to
Social Security benefits only; a comparison of average SMI premiums
and cost-sharing amounts to average total beneficiary income would
likely lead to similar conclusions. For illustration, the Trustees
estimate that the average Part B plus Part D premium in 2016 would
equal about 12 percent of the average Social Security benefit but would
increase to an estimated 17 percent in 2090 Similarly, an average cost-
30As a result, the projected ratio of average SMI out-of-pocket payments to average SMI
benefits is nearly constant over time.
Overview
40
sharing amount in 2016 would be equivalent to about 11 percent of the
Social Security benefit but would increase to about 17 percent in 2090.
The availability of SMI Part B and Part D benefits greatly reduces the
costs that beneficiaries would otherwise pay for health care services.
The introduction of the prescription drug benefit increased
beneficiaries’ costs for SMI premiums and cost sharing, but it reduced
their costs for previously uncovered services by substantially more.
Figure II.F2 highlights the impact of rapid cost growth for a given SMI
benefit package.
The average OASI benefit amount for all retired workers is the basis
for the Social Security benefits shown in figure II.F2; individual
retirees may receive significantly more or less than the average,
depending on their past earnings. For purposes of illustration,
figure II.F2 shows the average SMI benefit value and cost-sharing
liability for all beneficiaries. The value of SMI benefits to individual
enrollees and their cost-sharing payments vary even more
substantially than OASI benefits, depending on their income, assets,
and use of covered health services in a given year. In particular,
Medicaid pays Part B premiums and cost-sharing amounts for
beneficiaries with very low incomes, and the Medicare low-income drug
subsidy pays the corresponding Part D amounts (except for nominal
copayments). Moreover, Part B beneficiaries with high incomes have
been required to pay a higher income-related premium since 2007, and
Part D enrollees have been required to pay an income-related premium
since 2011. Further information on the nature of this comparison, and
on the variations from the average results, is available in a
memorandum by the CMS Office of the Actuary at http://www.cms.gov/
in Medicare expenditures. Furthermore, if the growth in Medicare
costs is comparable to growth under the illustrative alternative
projections, then these further policy reforms will have to address
much larger financial challenges than those assumed under current
law. The Board of Trustees believes that solutions can and must be
found to ensure the financial integrity of HI in the short and long term
and to reduce the rate of growth in Medicare costs through viable
means. Consideration of such reforms should not be delayed. The
sooner the solutions are enacted, the more flexible and gradual they
can be. Moreover, the early introduction of reforms increases the time
available for affected individuals and organizations—including health
care providers, beneficiaries, and taxpayers—to adjust their
expectations and behavior. The Board recommends that Congress and
the executive branch work closely together with a sense of urgency to
address these challenges.
45
III. ACTUARIAL ANALYSIS
A. INTRODUCTION
The Actuarial Analysis section focuses on the costs and financing of the
individual HI and SMI trust fund accounts. The Trustees perform an
analysis for each trust fund individually, to determine whether each
account’s income and expenditures are balanced as necessary to
maintain solvency. (It is also valuable to consider Medicare’s total
expenditures and the sources and relative magnitudes of the program’s
revenues. Appendix V.B presents such information for Medicare
overall.)
For this report, projections are shown in two different ways. The cash
basis reflects the date when payment for the service was made,
whereas the incurred basis reflects the date when the service was
performed. The projections are first prepared on an incurred basis, and
then adjustments are made to account for costs on a cash basis.
Generally, trust fund operations show the actual or projected income
and expenditures on a cash basis, while analysis and methodology are
presented on an incurred basis.
The HI and SMI trust funds are separate and distinct, each with its
own sources of financing. There are no provisions for using HI revenues
to finance SMI expenditures, or vice versa, or for lending assets
between the two trust funds. Moreover, the benefit provisions,
financing methods, and, to a lesser degree, eligibility rules are very
different between these Medicare components. In particular, both
accounts of the SMI trust fund are automatically in financial balance,
whereas the HI fund is not.
For these reasons, the Trustees can evaluate the financial status of the
Medicare trust funds only by separately assessing the status of each
fund. Sections III.B, III.C, and III.D of this report present such
assessments for HI (Part A), SMI Part B, and SMI Part D, respectively.
The Trustees also provide key results based on an illustrative
alternative scenario in appendix V.C.
Actuarial Analysis
46
B. HI FINANCIAL STATUS
This section presents actual HI trust fund operations in 2015 and HI
trust fund projections for the next 75 years. Section III.B1 discusses HI
financial results for 2015, and sections III.B2 and III.B3 discuss the
short-range HI projections and the long-range projections,
respectively. The projections shown in sections III.B2 and III.B3
assume no changes will occur in the statutory provisions and
regulations under which HI now operates.32
1. Financial Operations in Calendar Year 2015
On July 30, 1965, the Social Security Act established the Federal
Hospital Insurance Trust Fund as a separate account in the U.S.
Treasury. All the HI financial operations occur within this fund.
Table III.B1 presents a statement of the revenue and expenditures of
the fund in calendar year 2015, and of its assets at the beginning and
end of the calendar year.
The total assets of the trust fund amounted to $197.3 billion on
December 31, 2014. During calendar year 2015, total revenue
amounted to $275.4 billion, and total expenditures were $278.9 billion.
Total assets thus decreased by $3.5 billion during the year to
$193.8 billion on December 31, 2015.
32The one exception is that the projections disregard payment reductions that would
result from the projected depletion of the HI trust fund.
HI Financial Status
47
Table III.B1.—Statement of Operations of the HI Trust Fund during Calendar Year 2015
[In thousands]
Total assets of the trust fund, beginning of period .............................................................. $197,292,440 Revenue:
Payroll taxes ............................................................................................................... $241,075,028 Income from taxation of OASDI benefits .................................................................... 20,208,000 Interest on investments .............................................................................................. 8,241,088 Premiums collected from voluntary participants ........................................................ 3,206,058 Premiums collected from Medicare Advantage participants ...................................... 345,918 ACA Medicare shared savings program receipts ....................................................... 14,387 Transfer from Railroad Retirement account ............................................................... 564,800 Reimbursement, transitional uninsured coverage ...................................................... 187,000 Reimbursement, program management general fund ............................................... 650,124 Interfund interest receipts1 .......................................................................................... −18,419 Interest on reimbursements, Railroad Retirement ..................................................... 29,932 Other ........................................................................................................................... 3,010 Reimbursement, union activity ................................................................................... 1,084 Fraud and abuse control receipts:
Criminal fines ......................................................................................................... 56,549 Civil monetary penalties ......................................................................................... 61,393 Civil penalties and damages, Department of Justice ............................................ 507,562 Asset forfeitures, Department of Justice ................................................................ 11,329 3% administrative expense reimbursement, Department of Justice ..................... 15,698 General fund appropriation fraud and abuse, FBI ................................................. 129,217
General fund transfer, Discretionary ...................................................................... 61,840
Total revenue ................................................................................................................... $275,351,596
Expenditures: Net benefit payments ............................................................................................. $273,423,259 Administrative expenses:
Treasury administrative expenses .................................................................... 80,816 Salaries and expenses, SSA2 ........................................................................... 888,415 Salaries and expenses, CMS3 .......................................................................... 2,661,045 Salaries and expenses, Office of the Secretary, HHS ...................................... 35,866 Medicare Payment Advisory Commission ........................................................ 6,794 Administration on aging funding ........................................................................ 3,904 CMS program management–Affordable Care Act ............................................ 32,734 Transfer to Patient-Centered Outcomes Research Trust Fund4 ...................... 50,379 ACL State Health Insurance Assistance Program5 ........................................... 25,574
Fraud and abuse control expenses: HHS Medicare integrity program ....................................................................... 838,913 HHS Office of Inspector General ...................................................................... 338,558 Department of Justice ....................................................................................... 50,199 FBI ..................................................................................................................... 68,977 HCFAC Department of Justice Discretionary, CMS ......................................... 35,836 HCFAC Office of Inspector General Discretionary, CMS ................................. 71,171 HCFAC Other HHS Discretionary, CMS ........................................................... 48,143
Total administrative expenses ............................................................................... 5,462,509
Total expenditures ............................................................................................................... $278,885,767
Net addition to the trust fund ................................................................................................ −3,534,171
Total assets of the trust fund, end of period ........................................................................ $193,758,269 1Reflects interest adjustments on the reallocation of administrative expenses among the Medicare trust funds, the OASDI trust funds, and the general fund of the Treasury. Estimated payments are made from the trust funds and then are reconciled, with interest, the next year when the actual costs are known. A positive figure represents a transfer to the HI trust fund from the other trust funds. A negative figure
represents a transfer from the HI trust fund to the other funds. 2For facilities, goods, and services provided by SSA. 3Includes administrative expenses of the intermediaries. 4Reflects amount transferred from the HI trust fund to the Patient-Centered Outcomes Research trust fund, as authorized by the Patient Protection and Affordable Care Act of 2010.
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48
5Reflects amount transferred from the HI trust fund to the Administration for Community Living (ACL) for administration of the State Health Insurance Assistance program, as authorized by the Consolidated Appropriations Act of 2014.
Note: Totals do not necessarily equal the sums of rounded components.
a. Revenues
The trust fund’s primary source of income consists of amounts
appropriated to it, under permanent authority, on the basis of taxes
paid by workers, their employers, and individuals with
self-employment earnings, in work covered by HI. Included in HI are
workers covered under the OASDI program, those covered under the
Railroad Retirement program, and certain Federal, State, and local
employees not otherwise covered under the OASDI program.
HI taxes are payable without limit on a covered individual’s total
wages and self-employment earnings. For calendar years prior to 1994,
taxes were computed on a person’s annual earnings up to a specified
maximum annual amount called the maximum tax base. Table III.B2
presents the maximum tax bases for 1966-1993. Legislation enacted in
1993 removed the limit on taxable income beginning in calendar
year 1994.
Table III.B2 also shows the HI tax rates applicable in each of calendar
years 1966 and later. For 2017 and thereafter, the tax rates shown are
the rates scheduled in current law. As indicated in the footnote to the
table, in 2013 and later employees and self-employed individuals pay
an additional HI tax of 0.9 percent on their earnings above certain
thresholds.
HI Financial Status
49
Table III.B2.—Tax Rates and Maximum Tax Bases
Tax rate
(Percentage of taxable earnings)
Calendar years Maximum tax base Employees and employers, each Self-employed
Past experience: 1966 $6,600 0.35% 0.35% 1967 6,600 0.50 0.50
1994-2012 no limit 1.45 2.90 2013-2016 no limit 1.451 2.901
Scheduled in current law: 2017 & later no limit 1.451 2.901
1Beginning in 2013, workers pay an additional 0.9 percent of their earnings above $200,000 (for those who file an individual tax return) or $250,000 (for those who file a joint income tax return).
Total HI payroll tax income in calendar year 2015 amounted to
$241.1 billion—an increase of 6.0 percent over the amount of
$227.4 billion for the preceding 12-month period. This increase in tax
income resulted primarily from increases in the number of workers and
their average earnings.
Up to 85 percent of an individual’s or couple’s OASDI benefits may be
subject to Federal income taxation if their income exceeds certain
thresholds. The income tax revenue attributable to the first 50 percent
of OASDI benefits is allocated to the OASI and DI trust funds. The
revenue associated with the amount between 50 and 85 percent of
benefits is allocated to the HI trust fund. Income from the taxation of
OASDI benefits amounted to $20.2 billion in calendar year 2015.
Another substantial source of trust fund income is interest credited
from investments in government securities held by the fund. In
calendar year 2015, the fund received $8.2 billion in such interest. A
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50
description of the trust fund’s investment procedures appears later in
this section.
Section 1818 of the Social Security Act provides that certain persons
not otherwise eligible for HI protection may obtain coverage by
enrolling in HI and paying a monthly premium. In 2015, premiums
collected from such voluntary participants (or paid on their behalf by
Medicaid) amounted to about $3.2 billion.
The Railroad Retirement Act provides for a system of coordination and
financial interchange between the Railroad Retirement program and
the HI trust fund. This financial interchange requires a transfer that
would place the HI trust fund in the same position in which it would
have been if the Social Security Act had always covered railroad
employment. In accordance with these provisions, a transfer of
$565 million in principal and about $21 million in interest from the
Railroad Retirement program’s Social Security Equivalent Benefit
Account to the HI trust fund balanced the two systems as of
September 30, 2014. The trust fund received this transfer, together
with interest to the date of transfer totaling about $9 million, in
June 2015.
Legislation in 1982 added transitional entitlement for those Federal
employees who retire before having had a chance to earn sufficient
quarters of Medicare-qualified Federal employment. The general fund
of the Treasury provides reimbursement for the costs of this coverage,
including administrative expenses. In calendar year 2015, such
reimbursement amounted to $187 million for estimated benefit
payments for these beneficiaries.
The Health Insurance Portability and Accountability Act of 1996
established a health care fraud and abuse control account within the
HI trust fund. Monies derived from the fraud and abuse control
program are transferred from the general fund of the Treasury to the
HI trust fund. During calendar year 2015, the trust fund received
about $844 million from this program.
b. Expenditures
The HI trust fund pays expenditures for HI benefit payments and
administrative expenses. All HI administrative expenses incurred by
the Department of Health and Human Services, the Social Security
Administration, the Department of the Treasury (including the
Internal Revenue Service), and the Department of Justice in
administering HI are charged to the trust fund. Such administrative
HI Financial Status
51
duties include payment of benefits, the collection of taxes, fraud and
abuse control activities, and experiments and demonstration projects
designed to determine various methods of increasing efficiency and
economy in providing health care services, while maintaining the
quality of such services, under HI and SMI.
In addition, Congress has authorized expenditures from the trust
funds for construction, rental and lease, or purchase contracts of office
buildings and related facilities for use in connection with the
administration of HI. Although trust fund expenditures include these
costs, the statement of trust fund assets presented in this report does
not carry the net worth of facilities and other fixed capital assets
because the proceeds of sales of such assets revert to the General
Services Administration. Since the value of fixed capital assets does
not represent funds available for benefit or administrative
expenditures, the Trustees do not consider it in assessing the actuarial
status of the funds.
Of the $278.9 billion in total HI expenditures, $273.4 billion
represented net benefits paid from the trust fund for health services.33
Net benefit payments increased 3.2 percent in calendar year 2015 over
the corresponding amount of $264.9 billion paid during the preceding
calendar year. Enrollment increased by 2.2 percent and per capita costs
increased by 1.0 percent. This small increase was due to the continuing
effects of implementation of certain provisions of the ACA and to a
reduction in hospital admissions as more patients were being treated
as outpatients. Further information on HI benefits by type of service is
available in section IV.A.
The remaining $5.5 billion in expenditures was for net HI
administrative expenses, after adjustments to the preliminary
allocation of administrative costs among the Social Security and
Medicare trust funds and the general fund of the Treasury. This
amount included $1.7 billion for the health care fraud and abuse
control program.
c. Actual experience versus prior estimates
Table III.B3 compares the actual experience in calendar year 2015
with the estimates presented in the 2014 and 2015 annual reports. A
number of factors can contribute to differences between estimates and
subsequent actual experience. In particular, actual values for key
33Net benefits equal the total gross amounts initially paid from the trust fund during the
year, less recoveries of overpayments identified through fraud and abuse control
activities.
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52
economic and other variables can differ from assumed levels, and
legislative and regulatory changes may occur after a report’s
preparation. The comparison in table III.B3 indicates that actual HI
tax income in 2015 was about the same as estimated in the 2015 report.
This was the case because, even though taxable payroll was lower than
estimated, the net effect of payroll tax adjustments was greater than
previously assumed. The 2015 actual amount was slightly lower than
estimated in the 2014 report mostly because of lower growth in average
wages. Actual HI benefit payments in calendar year 2015 were slightly
higher than projected in the 2015 and 2014 reports largely due to
higher utilization of all types of services than previously estimated and
a 2015 settlement payment of $1.3 billion, which was not included in
either of the estimated amounts.
Table III.B3.—Comparison of Actual and Estimated Operations of the HI Trust Fund, Calendar Year 2015
[Dollar amounts in millions]
Comparison of actual experience with estimates for calendar year 2015 published in—
2015 report 2014 report
Item Actual
amount Estimated amount1
Actual as a percentage of estimate
Estimated amount1
Actual as a percentage of estimate
Payroll taxes $241,075 $241,018 100% $245,170 98% Benefit payments2 273,423 270,965 101 264,973 103 1Under the intermediate assumptions. 2Benefit payments include additional premiums for Medicare Advantage plans that are deducted from beneficiaries’ Social Security benefits, costs of Quality Improvement Organizations, and health information technology payments.
d. Assets
The Department of the Treasury invests, on a daily basis, the portion
of the trust fund not needed to meet current expenditures for benefits
and administration in interest-bearing obligations of the U.S.
Government. The Social Security Act authorizes the issuance of special
public-debt obligations for purchase exclusively by the trust fund. The
law requires that these special public-debt obligations bear interest at
a rate based on the average market yield (computed on the basis of
market quotations as of the end of the calendar month immediately
preceding the date of such issue) for all marketable interest-bearing
obligations of the United States forming a part of the public debt that
are not due or callable until after 4 years from the end of that month.
Currently, all invested assets of the HI trust fund are in the form of
such special-issue securities.34 Table V.H9, presented in appendix H,
34The Department of the Treasury may also make investments in obligations guaranteed
as to both principal and interest by the United States, including certain federally
sponsored agency obligations.
HI Financial Status
53
shows the assets of the HI trust fund at the end of fiscal years 2014
and 2015.
2. 10-Year Actuarial Estimates (2016-2025)
This section provides detailed information concerning the short-range
financial status of the trust fund, including projected annual income,
outgo, differences between income and outgo, and trust fund balances.
Also discussed is the Trustees’ test of short-range financial adequacy.
To illustrate the sensitivity of future costs to different economic and
demographic factors and to portray a reasonable range of possible
future trends, the Trustees show estimates under three alternative
sets of economic and demographic assumptions—intermediate,
low-cost, and high-cost assumptions. Due to the uncertainty inherent
in such projections, however, the actual operations of the HI trust fund
in the future could differ significantly from these estimates.
Figure III.B1 shows past and projected income and expenditures for
the HI trust fund under the Trustees’ intermediate assumptions.
Following the Balanced Budget Act of 1997, the fund experienced
annual surpluses in the range of $21 billion to $36 billion through
2003. This difference decreased to between $13 billion and $16 billion
in 2004 and 2005, but then reached about $20 billion in 2006 and
2007—in large part as a result of a misallocation of certain hospice
benefit costs to the Part B trust fund account. CMS corrected this
accounting error in 2008. Beginning in 2008, expenditures exceeded
total income, and this situation continued through 2015. Small annual
surpluses are expected from 2016 through 2020, and annual deficits
are expected to return in 2021 and to continue throughout the
remainder of the projection period.
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54
Figure III.B1.—HI Expenditures and Income [In billions]
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
1990 1995 2000 2005 2010 2015 2020 2025
Calendar year
Expenditures
Income
Historical Estimated
The impact of the December 2007 through June 2009 recession on HI
payroll tax income is apparent in figure III.B1. In 2009 and 2010,
payroll taxes decreased substantially as a result of higher
unemployment and slow growth in wages along with collection lags;
these factors contributed to the $32.3-billion trust fund deficit in 2010.
For 2011 through 2015, revenues rebounded somewhat but not enough
to reach the level of expenditures, which continued to grow due to
increased enrollment and the regular updating of the payment rates.
Together these factors resulted in a decline in trust fund deficits from
$27.7 billion in 2011 to $3.5 billion in 2015.
The provisions of the ACA and other recent legislation, and an
assumed strengthening economic recovery, sharply reduce the
magnitude of, and for some years eliminate, trust fund deficits in the
short-range period. A downward adjustment to price updates for all HI
providers by the growth in economy-wide productivity will slow
expenditure growth rates by 0.5 to 1.1 percentage points from 2015
through 2020. The significant reductions in Medicare Advantage
payment benchmarks under the ACA have reduced the per person level
of expenditures, and the additional 0.9-percent tax rate for high-
income workers in 2013 and later will increase HI payroll tax revenues.
HI expenditures are further affected by the sequestration of non-salary
Medicare expenditures. The sequestration reduces benefit payments
by 2 percent from April 1, 2013 through March 31, 2025 and by
HI Financial Status
55
4 percent from April 1, 2025 through September 30, 2025. Due to
sequestration, non-salary administrative expenses are reduced by an
estimated 5 percent from March 1, 2013 through September 30, 2025.
Due to these various statutory and economic factors, trust fund
surpluses would occur from 2016 through 2020. After 2020, annual
deficits would return.
As figure III.B1 illustrates, estimated HI income increases at a faster
rate during 2011-2018 than projected HI expenditures, in contrast to
the situation that has prevailed during most of the program’s history.
The projected recovery from the economic recession (which ended in
2009) accelerates income growth during this period. The additional
0.9-percent HI payroll tax rate, which began in 2013, also accelerates
growth, since, over time, a growing proportion of workers will exceed
the fixed earnings thresholds specified in the ACA ($200,000 for single
taxpayers and $250,000 for married couples) and will become subject
to this additional tax. At the same time, the other ACA provisions
mentioned previously will slow expenditure growth significantly.
Table III.B4 shows the expected operations of the HI trust fund during
calendar years 2016 to 2025 based on the intermediate set of
assumptions, together with the past experience. Section IV.A of this
report presents the detailed assumptions underlying the intermediate
projections.
Table III.B4.—Operations of the HI Trust Fund during Calendar Years 1970-2025 [In billions]
1Other income includes recoveries of amounts reimbursed from the trust fund that are not obligations of the trust fund, receipts from the fraud and abuse control program, and a small amount of miscellaneous income. These receipts amount to $2.5-$4.9 billion each year for the 10-year projection period. In 2008, other income includes an adjustment of −$0.9 billion for interest earned as a result of Part A hospice costs that were misallocated to the Part B trust fund account. 2Values after 2005 include additional premiums for Medicare Advantage plans that are deducted from beneficiaries’ Social Security benefits. These additional premiums are beneficiary obligations and occur when a beneficiary chooses an MA plan whose monthly plan payment exceeds the benchmark amount. Beneficiaries subject to such premiums may choose to either reimburse the plans directly or have the premiums deducted from their Social Security benefits. The premiums deducted from the Social Security benefits are transferred to the HI and SMI trust funds and then transferred from the trust funds to the plans. 3Includes costs of Peer Review Organizations from 1983 through 2001 (beginning with the implementation of the prospective payment system on October 1, 1983) and costs of Quality Improvement Organizations beginning in 2002. 4Includes costs of experiments and demonstration projects. Beginning in 1997, includes fraud and abuse control expenses, as provided for by Public Law 104-191. 5Includes the lump-sum general revenue adjustment of −$0.8 billion, as provided for by section 151 of Public Law 98-21. 6Includes repayment of loan principal, from the OASI trust fund, of $1.8 billion. 7Includes the lump-sum general revenue adjustment of −$1.1 billion, as provided for by section 151 of Public Law 98-21. 8For 1998 to 2003, includes monies transferred to the SMI trust fund for home health agency costs, as provided for by Public Law 105-33. 9Includes the $8.5 billion transferred to the general fund of the Treasury for Part A hospice costs that were previously misallocated to the Part B trust fund account. 10Includes the lump-sum general revenue adjustment of $1.0 billion, as provided for by section 151 of Public Law 98-21.
Note: Totals do not necessarily equal the sums of rounded components.
57
HI F
ina
ncia
l Sta
tus
Actuarial Analysis
58
The increases in estimated income shown in table III.B4 primarily
reflect increases in payroll tax income to the trust fund since such taxes
are the main source of HI financing. As noted, payroll tax revenues
increase in 2013 and later as a result of the additional 0.9-percent tax
rate on earnings for high-income workers. For all other workers, while
the payroll tax rate will remain constant under current law, covered
earnings would increase every year under the intermediate
assumptions due to projected increases in both the number of HI
workers covered and the average earnings of these workers.
The Trustees project that over the next 10 years most of the smaller
sources of financing for the HI trust fund will increase as well. More
detailed descriptions of these sources of income were discussed earlier
in this section.
Interest earnings have been a significant source of income to the trust
fund for many years, surpassed only by payroll taxes and, recently,
income from the taxation of OASDI benefits. As the trust fund balance
begins to increase again in the next several years, interest earnings
would follow the same pattern.
The Trustees have recommended maintenance of HI trust fund assets
at a level of at least 100 percent of annual expenditures throughout the
projection period. Such a level would provide a cushion of several years
in the event that income falls short of expenditures, thereby allowing
time for policy makers to implement legislative corrections. The trust
fund balance has been below one year’s expenditures in every year
since 2012 and is not projected to reach that level under the
intermediate assumptions.
The Trustees have also prepared projections using two alternative sets
of assumptions. Table III.B5 summarizes the estimated operations
under all three alternatives. Section IV.A presents in substantial
detail the assumptions underlying the intermediate assumptions, as
well as the assumptions used in preparing estimates under the low-cost
and high-cost alternatives.
HI Financial Status
59
Table III.B5.—Estimated Operations of the HI Trust Fund during Calendar Years 2015-2025, under Alternative Sets of Assumptions
1Ratio of assets in the fund at the beginning of the year to expenditures during the year. 2Figures for 2015 represent actual experience. 3Estimates for 2022 and later are hypothetical, since the HI trust fund would be depleted in those years.
Note: Totals do not necessarily equal the sums of rounded components.
These alternatives provide two possible Part A scenarios but represent
a narrow range of possible outcomes for total expenditures. Given the
considerable variation in future demographic, economic, and
healthcare-usage factors, actual Part A expenditure experience could
easily fall outside of this range. The low- and high-cost scenarios in this
year’s report once again result in a narrower dollar expenditure range
than in reports before 2014, due to a change in the alternative CPI
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60
assumptions.35 The taxable payroll assumptions for the alternative
scenarios are also affected by the assumption change. Therefore,
spending as a percentage of taxable payroll provides better insight into
the variability of spending than the nominal dollar amounts, as shown
in table III.B5.
The Board of Trustees has established an explicit test of short-range
financial adequacy. The requirements of this test are as follows: (i) if
the HI trust fund ratio is at least 100 percent at the beginning of the
projection period, then it must remain at or above 100 percent
throughout the 10-year projection period; (ii) alternatively, if the fund
ratio is initially less than 100 percent, it must reach a level of at least
100 percent within 5 years (with no depletion of the trust fund at any
time during this period) and then remain at or above 100 percent
throughout the rest of the 10-year period. The Trustees apply this test
based on the intermediate projections.
The HI trust fund does not meet this short-range test. Failure of the
trust fund to meet this test is an indication that HI solvency over the
next 10 years is in question and that action is necessary to improve the
short-range financial adequacy of the fund. While the short-range test
is stringent, its purpose is to ensure that health care benefits continue
to be available without interruption to the millions of aged and
disabled Americans who rely on such coverage. Table III.B6 shows the
ratios of assets in the HI trust fund at the beginning of a calendar year
to total expenditures during that year. As table III.B6 shows, the
Trustees project that the trust fund ratio, which was below the
100-percent level at the beginning of 2016, will decrease through 2025.
Accordingly, the financing for HI is not considered adequate in the
short-range projection period (2016-2025).
35Starting with the 2014 report, the Trustees’ alternative CPI assumptions are reversed
compared with those in previous reports, so that the high-cost assumptions are now the
low-cost assumptions, and vice versa. Inflation rates are now ordered across alternatives
according to their effect on the OASDI actuarial balance. This change resulted in a
narrow range of impacts.
HI Financial Status
61
Table III.B6.—Ratio of Assets at the Beginning of the Year to Expenditures during the Year for the HI Trust Fund
1Based on the Trustees’ intermediate assumptions, and expressed as a percentage of taxable payroll. Taxable payroll includes statutory wage credits for military service for 1957-2001. 2Difference between the income rates and cost rates. Negative values represent deficits.
The Trustees expect the continued recovery from the 2007-2009
recession and recently enacted legislation, including the ACA, to
generate smaller deficits from 2016 through 2021. Then the impact of
demographic shifts—notably, the aging of the baby boom population—
causes the annual deficits to increase rapidly through about 2045.
After 2045, the income rates are still insufficient, but the size of the
projected deficits decreases throughout the period. Projected HI
expenditures are 4.88 and 5.08 percent of taxable payroll in 2050 and
2090, respectively. (Under the illustrative alternative projections, the
HI Financial Status
65
HI cost rates for 2050 and 2090 would equal 5.89 and 8.37 percent,
respectively.)
Figure III.B3 shows the year-by-year costs as a percentage of taxable
payroll for each of the three sets of assumptions. It also shows the
income rates, but only for the intermediate assumptions in order to
simplify the presentation.
Figure III.B3.—Estimated HI Cost and Income Rates as a Percentage of Taxable Payroll
50 years, 2016-2065: Summarized income rate 3.79 3.77 3.84 Summarized cost rate 4.50 2.83 7.44 Actuarial balance −0.72 0.94 −3.60
75 years, 2016-2090: Summarized income rate 3.91 3.90 3.95 Summarized cost rate 4.63 2.69 8.20 Actuarial balance −0.73 1.21 −4.25
1Income rates include beginning trust fund balances, and cost rates include the cost of attaining a trust fund balance at the end of the period equal to 100 percent of the following year’s estimated expenditures.
Note: Totals do not necessarily equal the sums of rounded components.
The divergence in outcomes among the three sets of assumptions is
apparent both in the estimated operations of the trust fund on a cash
basis (as discussed in section III.B2) and in the 75-year summarized
costs. Under the low-cost economic and demographic assumptions, the
summarized cost rate for the 75-year valuation period is 2.69 percent
of taxable payroll, and the summarized income rate is 3.90 percent of
taxable payroll; accordingly, HI income rates would be adequate under
the highly favorable conditions assumed in the low-cost alternative.
Under the high-cost assumptions, the summarized cost rate for the
75-year projection period is 8.20 percent of taxable payroll, which is
more than twice the summarized income rate of 3.95 percent of taxable
payroll.
As suggested earlier, past experience has indicated that economic and
demographic conditions that are as financially adverse as those
assumed under the high-cost alternative can, in fact, occur. Readers
should view all of the alternative sets of economic and demographic
assumptions as plausible. The wide range of results under the three
sets of assumptions is indicative of the uncertainty of HI’s future cost
and its sensitivity to future economic and demographic conditions.
Accordingly, it is important to maintain an adequate balance in the HI
trust fund as a reserve for contingencies and to promptly address
financial imbalances through corrective legislation.
Table III.B9 shows the long-range actuarial balance under the
intermediate projections with its component parts—the present values
of tax income, expenditures, and asset requirement of the HI program
over the next 75 years.
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70
Table III.B9.—Components of 75-Year HI Actuarial Balance under Intermediate Assumptions (2016-2090)
Present value as of January 1, 2016 (in billions): a. Payroll tax income ......................................................................................... $17,507 b. Taxation of benefits income .......................................................................... 2,776 c. Fraud and abuse control receipts ................................................................. 125 d. Other Income................................................................................................. 293 e. Total income (a + b + c + d) .......................................................................... 20,701 f. Expenditures ................................................................................................. 24,523 g. Expenditures minus income (f − e) ............................................................... 3,822 h. Trust fund assets at start of period ............................................................... 194 i. Open-group unfunded obligation (g − h) ....................................................... 3,628 j. Ending target trust fund1 ............................................................................... 255 k. Present value of actuarial balance (e − f + h − j) .......................................... −3,883 l. Taxable payroll .............................................................................................. 534,785
1The calculation of the actuarial balance includes the cost of accumulating a target trust fund balance equal to 100 percent of annual expenditures by the end of the period.
Note: Totals do not necessarily equal the sums of rounded components.
The present value of future expenditures less future tax income,
decreased by the amount of HI trust fund assets on hand at the
beginning of the projection, amounts to $3.6 trillion. This value is
referred to as the 75-year unfunded obligation for the HI trust fund,
and it is considerably higher than last year’s value of $3.0 trillion. The
actuarial balance is like the unfunded obligation except that (i) it is a
measure of the degree to which the program is funded rather than
unfunded and so is opposite in sign; (ii) it includes the trust fund
balance at the end of 75 years as a cost; and (iii) it is expressed as a
percentage of taxable payroll. Specifically, the actuarial balance is
−0.73 percent of taxable payroll and is calculated as the trust fund
balance plus the present value of revenues less the present value of
costs (−$3.6 trillion), less the present value of the target trust fund
balance ($255 billion), all divided by the present value of future taxable
payroll ($534.8 trillion).
Figure III.B5 shows the present values, as of January 1, 2016, of
cumulative HI taxes less expenditures (plus the 2016 trust fund)
through each of the next 75 years. The Trustees estimate these values
under current-law expenditures and tax rates.
HI Financial Status
71
Figure III.B5.—Present Value of Cumulative HI Taxes Less Expenditures through Year Shown, Evaluated under Current-Law Tax Rates
and Legislated Expenditures [Present value as of January 1, 2016; in trillions]
-$6
-$5
-$4
-$3
-$2
-$1
$0
$1
2016 2026 2036 2046 2056 2066 2076 2086
Ending year of valuation period
The cumulative annual balance of the trust fund at the beginning of
2016 is about $0.2 trillion. The cumulative present value increases
slightly before it trends steadily downward over the projection period
due to the anticipated shortfall of tax revenues, relative to
expenditures, in all years beginning in 2021. The projected depletion
date of the trust fund is 2028, at which time cumulative expenditures
would have exceeded cumulative tax revenues by enough to equal the
initial fund assets accumulated with interest. The continuing
downward slope in the line thereafter further illustrates the difference
between the HI expenditures projected under current law and the
financing currently scheduled to support these expenditures. As noted
previously, over the full 75-year period, the fund has a projected
present value unfunded obligation of $3.6 trillion. This unfunded
obligation indicates that if $3.6 trillion were added to the trust fund at
the beginning of 2016, the program would meet the projected cost of
expenditures over the next 75 years. More realistically, additional
annual revenues and/or reductions in expenditures, with a present
value totaling $3.6 trillion, would be necessary to reach financial
balance (but with zero trust fund assets at the end of 2090).
The estimated unfunded obligation of $3.6 trillion and the closely
associated present value of the actuarial deficit ($3.9 trillion) are
useful indicators of the sizable financial burden facing the American
Actuarial Analysis
72
public. In other words, increases in revenues and/or reductions in
benefit expenditures—equivalent to a lump-sum amount today of
$3.9 trillion—would be necessary to bring the HI trust fund into long-
range financial balance. At the same time, long-range measures
expressed in dollar amounts can be difficult to interpret, even when
calculated as present values, which are sensitive to the underlying
discount rate assumptions. For this reason, the Board of Trustees has
customarily emphasized relative measures, such as the income rate
and cost rate comparisons shown earlier in this section, and
comparisons to the present value of future taxable payroll or GDP.
Figure III.B6 compares the year-by-year HI cost and income rates for
the current annual report with the corresponding projections from the
2015 report.
Figure III.B6.—Comparison of HI Cost and Income Rate Projections: Current versus Prior Year’s Reports
2. Changes: a. Valuation period −0.01 b. Base estimate −0.01 c. Private health plan assumptions 0.00 d. Hospital assumptions −0.01 e. Other provider assumptions 0.00 f. Other economic and demographic assumptions −0.01 g. Methodological changes −0.01
1The first value in each pair is the assumed ultimate annual percentage increase in average wages in covered employment. The second value is the assumed ultimate annual percentage increase in the CPI. The difference between the two values is the real-wage differential.
The sensitivity of the HI actuarial balance to different real-wage
assumptions is significant, but not as substantial as one might
1The first value in each pair is the assumed ultimate annual percentage increase in average wages in covered employment. The second value is the assumed ultimate annual percentage increase in the CPI.
The variation in the rate of change assumed for the CPI has only a
small impact on the actuarial balance, as the summarized income rates
are slightly affected while the summarized cost rates are virtually
unchanged.
Faster assumed growth in the CPI results in a somewhat larger HI
income rate because the income thresholds for the taxation of Social
Security benefits and for the additional 0.9-percent payroll tax rate are
not indexed. As a result, the share of Social Security benefits subject
42Prior to the 2015 report, the Trustees used the lower CPI for the low-cost alternative
and the higher CPI for the high-cost alternative.
HI Financial Status
77
to income tax, as well as the share of earnings subject to the additional
tax, increases over time. This impact accelerates under conditions of
faster CPI growth. In contrast, the cost rate remains about the same
with greater assumed rates of increase in the CPI. The relative
insensitivity of projected HI cost rates to different levels of general
inflation occurs because of the assumption that inflation
proportionately affects both the taxable payroll of workers and medical
care costs about equally.43
In practice, differing rates of inflation could occur between the economy
in general and the medical-care sector. Readers can judge the effect of
such a difference from the sensitivity analysis shown in section III.B4d
on health care cost factors.
c. Real-Interest Rate
Table III.B13 shows projected HI income rates, cost rates, and
actuarial balances under the intermediate alternative, with various
assumptions about the annual real-interest rate for special public-debt
obligations issuable to the trust fund. The ultimate annual real-
interest rate will be 2.2 percent (high-cost alternative), 2.7 percent
(intermediate projections), and 3.2 percent (low-cost alternative). In
each case, the assumed ultimate annual increase in the CPI is
2.6 percent (as assumed for the intermediate projections), which
results in ultimate annual yields of 4.8, 5.3, and 5.8 percent under the
three illustrations.
Table III.B13.—Estimated HI Income Rates, Cost Rates, and Actuarial Balances, Based on Intermediate Estimates with Various Real-Interest Assumptions
[As a percentage of taxable payroll]
Ultimate annual real-interest rate
Valuation period 2.2 percent 2.7 percent 3.2 percent
As illustrated in table III.B14, the financial status of the HI trust fund
is extremely sensitive to the relative growth rates for health care
service costs versus taxable payroll. For the 75-year period, the cost
rate increases from 3.29 percent (for an annual cost/payroll growth
rate of 1 percentage point less than the intermediate assumptions) to
6.80 percent (for an annual cost/payroll growth rate of 1 percentage
point more than the intermediate assumptions). Each
1.0-percentage-point increase in the assumed cost/payroll relative
growth rate decreases the long-range actuarial balance, on average, by
about 1.75 percent of taxable payroll.
C. PART B FINANCIAL STATUS
This section presents actual operations of the Part B account in the
SMI trust fund in 2015 and Part B projections for the next 75 years.
Section III.C1 discusses Part B financial results for 2015, and sections
III.C2 and III.C3 discuss the short-range Part B projections and the
long-range projections, respectively. The projections shown in
sections III.C2 and III.C3 assume no changes will occur in the
statutory provisions and regulations under which Part B now operates.
1. Financial Operations in Calendar Year 2015
Table III.C1 presents a statement of the revenue and expenditures of
the Part B account of the SMI trust fund in calendar year 2015, and of
its assets at the beginning and end of the year.
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80
Table III.C1.—Statement of Operations of the Part B Account in the SMI Trust Fund during Calendar Year 2015
[In thousands]
Total assets of the Part B account in the trust fund, beginning of period $68,073,920
Revenue: Premiums from enrollees:
Enrollees aged 65 and over ..................................................... $58,593,461 Disabled enrollees under age 65 ............................................. 10,852,241
Total premiums ............................................................................. 69,445,702 Premiums collected from Medicare Advantage participants ........ 390,651 Government contributions:
Enrollees aged 65 and over ..................................................... 160,672,443 Disabled enrollees under age 65 ............................................. 41,618,140 Health information technology (HIT) receipts .......................... 1,576,955
Total government contributions .................................................... 203,867,538 Other ............................................................................................. 14,226 Interest on investments ................................................................ 2,041,476 Interest on investments HIT adjustment ....................................... 251,294 Interfund interest receipts1 ............................................................ 18,142 ACA Medicare shared savings program receipts ......................... 10,725 Annual fees–branded Rx manufacturers and importers .............. 2,999,999
Total revenue..................................................................................... $279,039,755
Expenditures: Net Part B benefit payments ........................................................ $275,811,138 Administrative expenses:
Transfer to Medicaid2 ............................................................... 748,626 Treasury administrative expenses ........................................... 420 Salaries and expenses, CMS3 ................................................. 1,062,003 Salaries and expenses, Office of the Secretary, HHS ............ 35,839 Salaries and expenses, SSA ................................................... 1,081,851 Medicare Payment Advisory Commission ............................... 4,529 Administration on aging funding .............................................. 3,904 Railroad Retirement administrative expenses ......................... 47,804 CMS program management–Affordable Care Act................... 61,911 Transfer to Patient-Centered Outcomes Research trust fund4 72,994 ACL State Health Insurance Assistance Program5 25,574
Total administrative expenses ...................................................... 3,145,456
Total expenditures ............................................................................. $278,956,593
Net addition to the trust fund ............................................................. 83,161
Total assets of the Part B account in the trust fund, end of period ....... $68,157,082
1Reflects interest adjustments on the reallocation of administrative expenses among the Medicare trust funds, the OASDI trust funds, and the general fund of the Treasury. Estimated payments are made from the trust funds and then are reconciled, with interest, the next year when the actual costs are known. A positive figure represents a transfer to the Part B account in the SMI trust fund from the other trust funds. A negative figure represents a transfer from the Part B account of the SMI trust fund to the other funds. 2Represents amount transferred from the Part B account in the SMI trust fund to Medicaid to pay the Part B premium for certain qualified individuals, as legislated by the Balanced Budget Act of 1997. 3Includes administrative expenses of the carriers and intermediaries. 4Reflects amount transferred from the Part B account of the SMI trust fund to the Patient-Centered Outcomes Research trust fund, as authorized by the Patient Protection and Affordable Care Act of 2010. 5Reflects amount transferred from the Part B account of the SMI trust fund to the Administration for Community Living (ACL) for administration of the State Health Insurance Assistance program, as authorized by the Consolidated Appropriations Act of 2014.
Note: Totals do not necessarily equal the sums of rounded components.
The total assets of the account amounted to $68.1 billion on
December 31, 2014. During calendar year 2015, total revenue
amounted to $279.0 billion, and total expenditures were $279.0 billion.
Total assets were $68.2 billion as of December 31, 2015. The asset level
Part B Financial Status
81
was unchanged because roughly $7.5 billion of the revenue for 2016
was received in 2015. Otherwise, the assets would have decreased
during 2015 by approximately $7.5 billion.45
a. Revenues
The major sources of revenue for the Part B account are
(i) contributions of the Federal Government that the law authorizes to
be appropriated and transferred from the general fund of the Treasury
and (ii) premiums paid by eligible persons who voluntarily enroll.
Another source of revenues, which began in 2011 as specified by the
ACA, is the annual fees assessed on manufacturers and importers of
brand-name prescription drugs. The ACA directs that these fees be
allocated to the Part B trust fund account, where they will serve to
slightly reduce the need for premium revenues and Federal general
revenues. Eligible persons aged 65 and over have been able to enroll in
Part B since its inception in July 1966. Since July 1973, disabled
persons who are under age 65 and who have met certain eligibility
requirements have also been able to enroll.
Of the total Part B revenue, $69.4 billion represented premium
payments by (or on behalf of) aged and disabled enrollees—an increase
of 5.8 percent over the amount of $65.6 billion for the preceding year.
Government contributions matched the premiums paid for fiscal years
1967 through 1973 dollar for dollar. Beginning July 1973, the amount
of government contributions corresponding to premiums paid by each
of the two groups of enrollees is determined by applying a matching
rate, prescribed in the law for each group, to the amount of premiums
received from that group.46 This ratio is equal to twice the monthly
actuarial rate applicable to the particular group of enrollees, minus the
standard monthly premium rate, divided by the standard monthly
premium rate.
45Section 708 of the Social Security Act modifies the provisions for the payment of Social
Security benefits when the regularly designated day falls on a Saturday, Sunday, or legal
public holiday. Payment of those benefits normally due January 3, 2016 actually
occurred on December 31, 2015. Consequently, the Part B premiums withheld from
these benefits and the associated general revenue contributions were added to the SMI
trust fund on December 31, 2015. 46For 2016 through 2021, under the intermediate assumptions, the standard premium
includes an additional amount ($3.00 through 2020 and $1.60 in 2021) to repay the
balance due resulting from a 2016 general revenue transfer to the Part B account of the
SMI trust fund, in accordance with the Bipartisan Budget Act of 2015. This additional
amount is not included in the determination of the matching rates and is not to be
matched by general revenue contributions.
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82
The Secretary of Health and Human Services promulgates standard
monthly premium rates and actuarial rates each year. Table III.C2
shows past monthly premium rates and actuarial rates together with
the corresponding percentages of Part B costs covered by the premium
rate. Estimated future premium amounts under the intermediate set
of assumptions appear in tables V.E2 and V.E3.
Table III.C2.—Standard Part B Monthly Premium Rates, Actuarial Rates, and Premium Rates as a Percentage of Part B Cost
Monthly actuarial rate Premium rates as a
percentage of Part B cost
Standard monthly
premium rate1 Enrollees aged
65 and over
Disabled enrollees
under age 65 Enrollees aged
65 and over
Disabled enrollees
under age 65
July 1966-March 1968 $3.00 — — 50.0% —
April 1968-June 1970 4.00 — — 50.0 —
12-month period ending June 30 of 1975 6.70 6.70 18.00 50.0 18.6 1980 8.70 13.40 25.00 32.5 17.4
1The amount shown for each year represents the standard Part B premium paid by, or on behalf of, most Part B enrollees. It does not reflect other amounts that certain beneficiaries must pay, such as the income-related monthly adjustment amount for beneficiaries with high incomes and the premium surcharge for beneficiaries who enroll late. In addition, it does not reflect a reduction in premium for beneficiaries covered by the hold-harmless provision. As a result of this provision, most Part B beneficiaries had their 2010 and 2011 monthly premium held to the 2009 rate of $96.40, and most such beneficiaries have had their 2016 monthly premium held to the 2015 rate of $104.90. Section V.E describes these amounts in more detail.
Figure III.C1 is a graph of the monthly per capita financing rates in all
financing periods after 1983 for enrollees aged 65 and over and for
disabled individuals under age 65. The graph shows the portion of the
Part B Financial Status
83
financing contributed by the beneficiaries and by general revenues. As
indicated, general revenue financing is the largest income source for
Part B.
Figure III.C1.—Part B Aged and Disabled Monthly Per Capita Trust Fund Income
Beneficiary premiumAged general revenue contributionDisabled general revenue contribution
Financing period
Note: The amounts shown do not include the catastrophic coverage monthly premium rate for 1989.
In calendar year 2015, premium matching contributions received from
the general fund of the Treasury amounted to $202.30 billion, which
accounted for 72.5 percent of total revenue. Transfers from the general
fund of the Treasury for the health information technology (HIT)
incentive payments were $1.6 billion in 2015. The annual fees assessed
on manufacturers and importers of brand-name prescription drugs
amounted to $3.0 billion in revenue.
Another source of Part B revenue is interest received on investments
held by the Part B account. A description of the investment procedures
of the Part B account appears later in this section. In calendar year
2015, $2.3 billion of revenue was from interest on the investments of
the account, including an interest adjustment of $0.3 billion to correct
for HIT transfer errors.
The Department of the Treasury may accept and deposit in the Part B
account unconditional money gifts or bequests made for the benefit of
the fund. The Part B account received contributions in the amount of
$14 million in calendar year 2015.
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84
b. Expenditures
The account pays expenditures for Part B benefit payments and
administrative expenses. All expenses incurred by the Department of
Health and Human Services, the Social Security Administration, and
the Department of the Treasury in administering Part B are charged
to the account. Such administrative duties include payment of benefits,
fraud and abuse control activities, and experiments and demonstration
projects designed to determine various methods of increasing efficiency
and economy in providing health care services while maintaining the
quality of these services.
In addition, Congress has authorized expenditures from the trust
funds for construction, rental and lease, or purchase contracts of office
buildings and related facilities for use in connection with the
administration of Part B. The account expenditures include such costs.
The net worth of facilities and other fixed capital assets, however, does
not appear in the statement of Part B assets presented in this report,
since the value of fixed capital assets does not represent funds
available for benefit or administrative expenditures and is not,
therefore, pertinent in assessing the actuarial status of the funds.
Of total Part B expenditures, $275.8 billion represented net benefits
paid from the account for health services.47 Net benefits increased
5.3 percent over the corresponding amount of $261.9 billion paid
during the preceding calendar year. This spending growth reflects the
net change in both the number of beneficiaries and the price, volume,
and intensity of services. Additional information on Part B benefits by
type of service is available in section IV.B1.
The remaining $3.1 billion of expenditures was for administrative
expenses and represented 1.1 percent of total Part B expenditures in
2015.48 Administrative expenses are shown on a net basis, after
adjustments to the preliminary allocation of such costs among the
Social Security and Medicare trust funds and the general fund of the
Treasury.
47Net benefits equal the total gross amounts initially paid from the trust fund during the
year less recoveries of overpayments identified through fraud and abuse control
activities. 48In 2015, the Part B salaries and expenses for CMS, including the administrative
expenses of the carriers and intermediaries, amounted to $1.1 billion, or 0.4 percent of
total Part B expenditures.
Part B Financial Status
85
c. Actual experience versus prior estimates
Table III.C3 compares the actual experience in calendar year
2015 with the estimates presented in the 2014 and 2015 annual
reports. A number of factors can contribute to differences between
estimates and subsequent actual experience. In particular, actual
values for key economic and other variables can differ from assumed
levels, and lawmakers may adopt legislative and regulatory changes
after a report’s preparation. Table III.C3 indicates that actual Part B
benefit payments were somewhat higher than estimated in the 2014
report and slightly lower than estimated in the 2015 report. Actual
premiums and government contributions were slightly lower than
estimated in 2015, as the financing rates were determined in the fall
of 2014 and were included in the 2015 report, while premiums were
slightly lower and government contributions slightly higher than
estimated in 2014.
Table III.C3.—Comparison of Actual and Estimated Operations of the Part B Account in the SMI Trust Fund, Calendar Year 2015
[Dollar amounts in millions]
Comparison of actual experience with estimates for
calendar year 2015 published in:
2015 report 2014 report3
Item Actual
amount Estimated amount1
Actual as a percentage of estimate
Estimated amount1
Actual as a percentage of estimate
Premiums from enrollees $69,446 $70,318 99% $70,301 99% Government contributions 203,868 205,019 99 202,177 101 Benefit payments2 275,811 277,288 99 265,873 104 1Under the intermediate assumptions. 2Benefit payments include additional premiums for Medicare Advantage plans that are deducted from beneficiaries’ Social Security benefits, costs of Quality Improvement Organizations, and health information technology payments. 3The estimates in the 2014 report were shown not on a current-law basis but instead using a projected baseline scenario, which assumed an override of the current-law physician payment updates.
d. Assets
The Department of the Treasury invests the portion of the Part B
account not needed to meet current expenditures for benefits and
administration in interest-bearing obligations of the U.S. Government.
The Social Security Act authorizes the issuance of special public-debt
obligations for purchase exclusively by the account. The law requires
that these special public-debt obligations shall bear interest at a rate
based on the average market yield (computed on the basis of market
quotations as of the end of the calendar month immediately preceding
the date of such issue) for all marketable interest-bearing obligations
of the United States forming a part of the public debt that are not due
or callable until after 4 years from the end of that month. Since the
Actuarial Analysis
86
inception of the SMI trust fund, the Department of the Treasury has
always invested the assets in special public-debt obligations.49
Table V.H10, presented in appendix H, shows the assets of the SMI
trust fund (Parts B and D) at the end of fiscal years 2014 and 2015.
2. 10-Year Actuarial Estimates (2016-2025)
Section III.C2 provides detailed information concerning the short-
range financial status of the Part B account, including projected
annual income, outgo, differences between income and outgo, and trust
fund balances. The bases of the projected future operations of the
Part B account are the Trustees’ economic and demographic
assumptions, as detailed in the OASDI Trustees Report, as well as
other assumptions unique to Part B. Section IV.B1 presents an
explanation of the effects of these assumptions on the estimates in this
report. The Trustees also assume that financing for future periods will
be determined according to the statutory provisions described in
section III.C1a, although Part B financing rates have been set only
through December 31, 2016.
In 2016 the monthly Part B premium rate is $121.80, which is $16.90
higher than the 2015 monthly premium of $104.90. For determining
an individual’s monthly premium rate, there is a hold-harmless
provision in the law that limits the dollar increase in the premium to
the dollar increase in an individual’s Social Security benefit. This
provision applies to most beneficiaries who have their premiums
deducted from their Social Security benefits, or roughly 70 percent of
Part B enrollees.50 Because the cost-of-living adjustment (COLA) for
Social Security benefits is 0.0 percent for 2016, premiums did not
increase from the 2015 level for those beneficiaries to whom the
provision applies. Without the Bipartisan Budget Act of 2015 (BBA),
Part B premiums for other beneficiaries would have been raised
substantially to offset premiums forgone as a result of the hold-
harmless provision, to prevent asset exhaustion, and to maintain a
contingency reserve that accommodates normal financial variation.
However, the BBA specified that the Part B premium be determined
as if the hold-harmless provision did not apply and that a transfer be
made from the general fund of the Treasury to the Part B account of
49The Department of the Treasury may also make investments in obligations guaranteed
as to both principal and interest by the United States, including certain federally
sponsored agency obligations. 50About 30 percent of Part B enrollees are not eligible for the hold-harmless provision.
This group consists of new enrollees during the year, enrollees who do not receive Social
Security benefit checks, enrollees with high incomes who are subject to the income-
related premium adjustment, and dual Medicare-Medicaid beneficiaries (whose
premiums are paid by State Medicaid programs).
Part B Financial Status
87
the SMI trust fund in the amount of the estimated forgone premiums
(and that the transfer be treated as premiums for matching purposes).
The BBA further requires that, starting in 2016, the Part B premium
otherwise determined be increased by $3.00, which is to be collected
and repaid to the general fund of the Treasury. The additional
repayment premium amounts will continue until the balance due
(defined in the BBA as the transfer to the Part B account from the
general fund plus forgone income-related premiums) has been repaid.51
If the COLA for Social Security is 0.0 percent for 2017, then these BBA
provisions will also apply for 2017.
Under the intermediate assumptions, the 2017 Social Security COLA
is 0.2 percent. The BBA provisions do not apply under these
assumptions, but the COLA is not large enough to allow for full
payment of the estimated 2017 premium by those Part B enrollees
subject to the hold-harmless provision. As a result, Part B premiums
for other beneficiaries must be raised substantially, and the estimated
monthly premium for 2017 is therefore $149.00.52
MACRA replaced the physician payment updates under the
sustainable growth rate (SGR) formula with specified physician
payment updates for every future year. In 2016, physician payments
are 0.5 percent higher than payment levels at the end of 2015. The
physician payment update for 2017 through 2019 will be 0.5 percent.
For 2020 through 2025, the update will be 0.0 percent. For 2026 and
later, there will be two payment rates: for providers paid through an
alternative payment model (APM), payment rates will be increased by
0.75 percent each year, while payment rates for all other providers will
be increased each year by 0.25 percent. The income, expenditures, and
assets for Part B reflect these provisions.
Projected Part B expenditures are further affected by the sequestration
of Medicare expenditures required by current law. The sequestration
reduces benefit payments by 2 percent from April 1, 2013 through
March 31, 2025 and by 4 percent from April 1, 2025 through
September 30, 2025. Due to sequestration, non-salary administrative
51In the final repayment year, the additional amount may be less than $3.00 in order to
avoid overpayments. 52If the Social Security COLA were 0 percent (so that the BBA provisions would apply)
or large enough to allow all Part B enrollees to pay the full 2017 premium, then the
estimated 2017 premium would be roughly the same as the 2016 premium of $121.80.
This amount includes the increase in premium to repay the general fund under the BBA,
as the margin included in the 2016 Part B financing is projected to be adequate to absorb
most of the additional repayment.
Actuarial Analysis
88
expenses are reduced by an estimated 5 percent from March 1, 2013
through September 30, 2025.
Table III.C4 shows the estimated operations of the Part B account
under the intermediate assumptions on a calendar-year basis through
2025.
Table III.C4.—Operations of the Part B Account in the SMI Trust Fund (Cash Basis) during Calendar Years 1970-2025
1General fund matching payments, plus certain interest-adjustment items. 2Other income includes recoveries of amounts reimbursed from the trust fund that are not obligations of the trust fund and other miscellaneous income. In 2008, includes an adjustment of $0.8 billion for interest earned as a result of Part A hospice costs that were misallocated to the Part B trust fund account. 3See footnote 2 of table III.B4. 4Includes costs of Peer Review Organizations from 1983 through 2001 and costs of Quality Improvement Organizations beginning in 2002. 5The financial status of Part B depends on both the assets and the liabilities of the trust fund (see table III.C8). 6Benefit payments less monies transferred from the HI trust fund for home health agency costs, as provided for by the Balanced Budget Act of 1997. 7Benefits shown for 2008 are lower by the $8.5 billion transferred from the general fund of the Treasury to reimburse Part B for Part A hospice costs that were previously misallocated to the Part B trust fund account. 8Section 708 of the Social Security Act modifies the provisions for the payment of Social Security benefits when the regularly designated day falls on a Saturday, Sunday, or legal public holiday. Payment of those benefits normally due January 3, 2010 actually occurred on December 31, 2009, and payment of benefits normally due January 3, 2016 occurred on December 31, 2015. Consequently, the Part B premiums
Part B Financial Status
89
withheld from these benefits and the associated general revenue contributions were added to the Part B account on December 31, 2009 (about $14.8 billion) and December 31, 2015 (about $7.5 billion), respectively. Similarly, the payment date for those benefits normally due on January 3, 2021 will be December 31, 2020, and accordingly an estimated $13.9 billion will be added to the Part B account on December 31, 2020.
Note: Totals do not necessarily equal the sums of rounded components.
As shown in table III.C4, the Part B account would increase by the end
of 2016 to an estimated $85.4 billion. This increase includes the effects
of the Bipartisan Budget Act of 2015, which requires that $7.4 billion
be transferred in 2016 from the general fund of the Treasury to the
Part B account of the SMI trust fund (with the transfer amount treated
as premiums for general revenue matching purposes).
The statutory provisions governing Part B financing have changed
over time. Under current law, the standard Part B premium is set at
the level of about 25 percent of average expenditures for beneficiaries
aged 65 and over. The Bipartisan Budget Act of 2015 specified that the
Part B premium otherwise estimated be increased by $3.00 for a
limited number of years, starting with 2016. In addition, Part B
beneficiaries with high incomes pay a higher income-related premium.
Figure III.C2 shows historical and projected ratios of premium income
to Part B expenditures.
Figure III.C2.—Premium Income as a Percentage of Part B Expenditures
0%
10%
20%
30%
40%
50%
60%
1970 1980 1990 2000 2010 2020
Calendar year
Historical Estimated
Beneficiary premiums are also affected by a provision of the ACA that
imposes fees on the manufacturers and importers of brand-name
prescription drugs and allocates the fees to the Part B account of the
Actuarial Analysis
90
SMI trust fund. The legislation does not modify the determination of
the Part B actuarial rates, premiums, or general revenue matching
contributions; consequently, the normal financing, plus the new fees,
would result in an excessive level of program financing without other
action. Thus, there will be a reduction in the premium margin for
maintaining an appropriate level of trust fund assets such that total
revenues from premiums, matching general revenues, and the
earmarked fees relating to brand-name prescription drugs will equal
the appropriate level needed for program financing.
The amount and rate of growth of benefit payments have caused
concern for many years. Table III.C5 shows payment amounts in the
aggregate, on a per capita basis, and relative to the Gross Domestic
Product (GDP). Rates of growth appear historically and for the next
10 years based on the intermediate assumptions.
Aggregate Part B benefit growth has averaged 5.6 percent annually
over the past 5 years. A one-time hospice payment correction in 2008
led to higher growth in 2009. During 2015, Part B benefits grew
5.3 percent on an aggregate basis and were 1.53 percent of GDP.
Table III.C5.—Growth in Part B Benefits (Cash Basis) through December 31, 2025
1Other income contains government contributions, fees on manufacturers and importers of brand-name prescription drugs, and interest. 2Figures for 2015 represent actual experience. 3See footnote 8 of table III.C4.
Notes: 1. Totals do not necessarily equal the sums of rounded components. 2. Percentages are affected by economic cycles.
These alternatives provide two possible Part B scenarios but represent
a narrow range of possible outcomes for total expenditures. Given the
considerable variation in future demographic, economic, and
healthcare-usage factors, actual Part B experience could easily fall
outside of this range. The low- and high-cost scenarios in this year’s
report result in a narrower dollar range than shown prior to the
2014 report, due to a change in the alternative assumptions beginning
Part B Financial Status
93
with that report.53 The GDP assumptions for the alternative scenarios
are also affected by the assumption change. Therefore, spending as a
percent of GDP provides better insight into the variability of spending
than the nominal dollar amounts, as shown in table III.C6.
The alternative projections shown in table III.C6 illustrate two
important aspects of the financial operations of the Part B account:
• Despite the differing assumptions underlying the three
alternatives, the balance between Part B income and expenditures
remains relatively stable. This result occurs because the Secretary
of Health and Human Services annually reestablishes the
premiums and general revenue contributions underlying Part B
financing to cover each year’s anticipated incurred benefit costs
and other expenditures and then increases these amounts by a
margin that reflects the uncertainty of the projection. Thus, Part B
income automatically tracks Part B expenditures fairly closely,
regardless of the specific economic and other conditions.
• As a result of the close matching of income and expenditures
described above, projected account assets show similar, stable
patterns of change under all three sets of assumptions.
Adequacy of Part B Financing Established for Calendar Year 2016
The traditional concept of financial adequacy, as it applies to Part B,
is closely related to the concept as it applies to many private group
insurance plans. Part B is somewhat similar to private yearly
renewable term insurance, with financing established each year based
on estimated costs for the year. For Part B, premium income paid by
the enrollees and general revenues contributed by the Federal
Government provide financing. As with private plans, the income
during a 12-month period for which financing is being established
should be sufficient to cover the costs of services expected to be
rendered during that period (including associated administrative
costs), even though payment for some of these services will not occur
until after the period closes. The portion of income required to cover
those benefits not paid until after the end of the year is added to the
account; thus assets in the account at any time should not be less than
53Starting with the 2014 report, the Trustees’ alternative CPI assumptions are reversed
compared with those in previous reports, so that the high-cost assumptions are now the
low-cost assumptions, and vice versa. Inflation rates are now ordered across alternatives
according to their effect on the OASDI actuarial balance. This change resulted in a
narrow range of impacts.
Actuarial Analysis
94
the costs of the benefits and the administrative expenses incurred but
not yet paid.
Since the Secretary of Health and Human Services establishes the
income per enrollee (premium plus government contribution)
prospectively each year, it is subject to projection error. Additionally,
legislation enacted after the financing has been established, but
effective for the period for which financing has been set, may affect
costs. Account assets, therefore, need to be maintained at a level that
is adequate to cover not only the value of incurred-but-unpaid expenses
but also a reasonable degree of variation between actual and projected
costs (in case actual costs exceed projected).
The Trustees traditionally evaluate the actuarial status or financial
adequacy of the Part B account over the period for which the enrollee
premium rates and level of general revenue financing have been
established. The primary tests are that (i) the assets and income for
years for which financing has been established should be sufficient to
meet the projected benefits and associated administrative expenses
incurred for that period; and (ii) the assets should be sufficient to cover
projected liabilities for benefits that have not yet been paid as of the
end of the period. If Part B does not meet these adequacy tests, it can
still continue to operate if the account remains at a level adequate to
permit the payment of claims as presented. However, to protect against
the possibility that costs will be higher than assumed, assets should be
sufficient to include contingency levels that cover a reasonable degree
of variation between actual and projected costs.
As noted above, the tests of financial adequacy for Part B rely on the
incurred experience of the account, including a liability for the costs of
services performed in a particular year but not yet paid in that year.
Table III.C7 shows the estimated transactions of the account on an
incurred basis. Readers should view the incurred experience as an
estimate, even for historical years.54
54Part B experience is substantially more difficult to determine on an incurred basis than
on a cash basis. For some services, reporting of payment occurs only on a cash basis, and
it is necessary to infer the incurred experience from the cash payment information.
Moreover, for recent time periods the tabulations of bills are incomplete due to normal
processing time lags.
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95
Table III.C7.—Estimated Part B Income and Expenditures (Incurred Basis) for Financing Periods through December 31, 2016
1See footnote 6 of table III.C4. 2A July 1, 2008 general revenue transfer was made in the amount of $9.3 billion to restore the Part B account assets for hospice benefit accounting errors that occurred from 2005 through September 2007. An estimated $9.1 billion was due but unpaid by the end of 2007 when the error was discovered, and an additional estimated $0.2 billion in interest accrued until July 1, 2008 when the corrective payment was made.
Estimates of the liability amounts for benefits incurred but unpaid as
of the end of each financing period, and of the administrative expenses
related to processing these benefits, appear in table III.C8. In some
years, account assets have not been as large as liabilities. Nonetheless,
the fund has remained positive, which has allowed payment of all
claims.
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96
Table III.C8.—Summary of Estimated Part B Assets and Liabilities as of the End of the Financing Period, for Periods through December 31, 2016
1Ratio of the excess of assets over liabilities to the following year’s total incurred expenditures. 2This amount includes both the principal of $6,736 million and the accumulated interest through December 31, 1995 for the shortfall in the fiscal year 1995 appropriation for government contributions. Normally, this transfer would have occurred on December 31, 1995, and the trust fund balance would have reflected it. However, due to absence of funding, there was a delay in the transfer of the principal and the appropriate interest until March 1, 1996. 3Part B erroneously paid certain Part A benefits from 2005 through September 2007. Therefore, on July 1, 2008 the Part B account of the SMI trust fund received a general revenue transfer of $9,296 million to restore the Part B account. Beginning in 2007, the year in which the errors were discovered, the table shows these amounts to be repaid to the Part B account. The 2007 amount shown includes both the estimated principal of $8,484 million and the estimated accumulated interest through December 31, 2007.
The amount of assets minus liabilities, compared with the estimated
incurred expenditures for the following calendar year, forms a relative
measure of the Part B account’s financial status. The last column in
table III.C8 shows such ratios for past years and the estimated ratio at
the end of 2016. Actuarial analysis has indicated that a ratio of roughly
15-20 percent is sufficient to protect against unforeseen contingencies,
such as unusually large increases in Part B expenditures.
The Secretary of Health and Human Services established Part B
financing through December 31, 2016. Estimated income exceeds
estimated incurred expenditures in 2016, as shown in table III.C7. The
excess of assets over liabilities increases by an estimated $27.1 billion
by the end of December 2016, as indicated in table III.C8. This increase
occurs because 2016 Part B financing, including a transfer of
$7.4 billion as specified in the Bipartisan Budget Act of 2015, was set
Part B Financial Status
97
at a level that would increase the Part B assets and restore the
contingency reserve to an adequate level.
Since the financing rates are set prospectively, variations between
assumed cost increases and subsequent actual experience could affect
the actuarial status of the Part B account. To test the status of the
account under varying assumptions, the Trustees prepared a lower-
growth-range projection and an upper-growth-range projection by
varying the key assumptions for 2015 and 2016. These two alternative
sets of assumptions provide a range of financial outcomes within which
one might reasonably expect the actual experience of Part B to fall. The
Trustees determined the values for the lower- and upper-growth-range
assumptions from a statistical analysis of the historical variation in
the respective increase factors.
This sensitivity analysis differs from the low-cost and high-cost
projections discussed previously in this section in that this analysis
examines the variation in the projection factors in the period for which
the financing has been established (2016 for this report). The low-cost
and high-cost projections, on the other hand, illustrate the financial
impact of slower or faster growth trends throughout the short-range
projection period.
Table III.C9 indicates that, under the lower-growth-range scenario,
account assets would exceed liabilities at the end of December 2016 by
a margin equivalent to 26.1 percent of the following year’s incurred
expenditures. Under the upper-growth-range scenario, account assets
would still exceed liabilities, but by a margin of 14.4 percent of
incurred expenditures in 2016. Under either scenario, assets would be
sufficient to cover outstanding liabilities. However, under the upper-
growth-range scenario, future financing rates would need to increase
to provide a fully adequate margin for adverse contingencies.
Figure III.C3 shows the reserve ratio for historical years and for 2016
under the three cost growth scenarios.
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98
Table III.C9.—Actuarial Status of the Part B Account in the SMI Trust Fund under Three Cost Sensitivity Scenarios for Financing Periods
through December 31, 2016 As of December 31, 2014 20151 2016
Intermediate scenario: Actuarial status (in millions) Assets $68,074 $68,157 $85,389 Liabilities 22,535 23,968 24,329
Assets less liabilities 45,539 44,189 61,047
Ratio2 16.3% 15.1% 19.7%
Lower-range scenario: Actuarial status (in millions) Assets $68,074 $68,157 $96,160 Liabilities 22,535 23,334 23,169
Assets less liabilities 45,539 44,823 72,991
Ratio2 16.7% 16.3% 26.1%
Upper-range scenario: Actuarial status (in millions) Assets $68,074 $68,157 $74,612 Liabilities 22,535 24,612 25,487
Assets less liabilities 45,539 43,546 49,126
Ratio2 16.0% 14.0% 14.4% 1About $7,544 million of 2016 income was received by the Part B account of the SMI trust fund in 2015. The assets, assets less liabilities, and ratio for 2015 all reflect the early receipt of income. 2Ratio of assets less liabilities at the end of the year to the total incurred expenditures during the following year, expressed as a percent.
Figure III.C3.—Actuarial Status of the Part B Account in the SMI Trust Fund through Calendar Year 2016
Note: The Trustees measure the actuarial status of the Part B account in the SMI trust fund by the ratio of (i) assets minus liabilities at the end of the year to (ii) the following year’s incurred expenditures.
Part B Financial Status
99
Based on the tests described above, the Trustees conclude that the
financing established for the Part B account for calendar year 2016 is
adequate to cover 2016 expected expenditures.
3. Long-Range Estimates
Section III.C2 presented the expected operations of the Part B account
over the next 10 years. This section examines the long-range
expenditures of the account under the intermediate assumptions. Due
to its automatic financing provisions, the Trustees expect the Part B
account to be adequately financed into the indefinite future and so
have not conducted a long-range analysis using high-cost and low-cost
assumptions.
Table III.C10 shows the estimated Part B incurred expenditures under
the intermediate assumptions expressed as a percentage of GDP for
selected years over the calendar-year period 2015-2090.55 The 75-year
projection period fully allows for the presentation of future trends that
one may reasonably expect to occur, such as the impact of the large
increase in enrollees as the baby boom generation begins to receive
benefits.
Table III.C10.—Part B Expenditures (Incurred Basis) as a Percentage of the Gross Domestic Product1
Calendar year Part B expenditures as a percentage of GDP
1Expenditures are the sum of benefit payments and administrative expenses.
Note: Percentages are affected by economic cycles.
55These estimated incurred expenditures are for benefit payments and administrative
expenses combined, unlike the values in table III.C5, which express only benefit
payments on a cash basis as a percentage of GDP.
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100
Sections II.C and IV.D describe the basis for the long-range
assumptions. Based on these assumptions and the projected
demographic changes, incurred Part B expenditures as a percentage of
GDP would increase from 1.56 percent in 2015 to 2.38 percent in 2090.
(Part B expenditures would instead increase to 3.98 percent in 2090
under the illustrative alternative scenario.)
Figure III.C4 compares the year-by-year Part B expenditures as a
percentage of GDP for the 2016 report with the projections from the
2015 report. The expenditure projections as a share of GDP for this
year’s report are similar to those in last year’s report. Both reports
show a projected decline in the share of Part B spending as a
percentage of GDP due to legislated updates, including those for
physician payments.
Figure III.C4.—Comparison of Part B Projections as a Percentage of the Gross Domestic Product: Current versus Prior Year’s Reports
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
1967 1982 1997 2012 2027 2042 2057 2072 2087
Calendar year
Current report
Prior report
Historical Estimated
Note: Percentages are affected by economic cycles.
D. PART D FINANCIAL STATUS
This section presents actual operations of the Part D account in the
SMI trust fund in 2015 and Part D projections for the next 75 years.
Section III.D1 discusses Part D financial results for 2015, and
sections III.D2 and III.D3 discuss the short-range Part D projections
and the long-range projections, respectively. The projections shown in
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101
sections III.D2 and III.D3 assume no changes will occur in the
statutory provisions and regulations under which Part D now operates.
1. Financial Operations in Calendar Year 2015
The total assets of the account amounted to approximately $1.1 billion
on December 31, 2014. During calendar year 2015, total Part D
expenditures were approximately $89.8 billion. General revenue was
provided on an as-needed basis to cover the portion of these
expenditures supported through Medicare subsidies. Total Part D
receipts were $90.0 billion. As a result, total assets in the Part D
account increased to $1.3 billion as of December 31, 2015.
Table III.D1 presents a statement of the revenue and expenditures of
the Part D account of the SMI trust fund in calendar year 2015, and of
its assets at the beginning and end of the calendar year.
Table III.D1—Statement of Operations of the Part D Account in the SMI Trust Fund during Calendar Year 2015
[In thousands]
Total assets of the Part D account in the trust fund, beginning of period $1,060,236
Revenue: Premiums from enrollees:
Premiums deducted from Social Security benefits .................. $4,100,980 Premiums paid directly to plans1 ............................................. 8,656,825
Total premiums ............................................................................. 12,757,805 Government contributions:
Prescription drug benefits ........................................................ 68,037,160 Prescription drug administrative expenses.............................. 340,446
Total government contributions .................................................... 68,377,606 Payments from States .................................................................. 8,900,467 Interest on investments ................................................................ 9,791 Interfund interest payments2 ......................................................... 1,278
Total revenue .................................................................................... $90,046,947
Expenditures: Part D benefit payments1 .............................................................. $89,453,383 Part D administrative expenses .................................................... 340,446
Total expenditures ............................................................................. $89,793,829
Net addition to the trust fund ............................................................. 253,118
Total assets of the Part D account in the trust fund, end of period ....... $1,313,354
1Premiums paid directly to plans are not displayed on Treasury statements and are estimated. These premiums have been added to the benefit payments reported on the Treasury statement to obtain an estimate of total Part D benefits. Direct data on such benefit amounts are not yet available. 2Reflects interest adjustments on the reallocation of administrative expenses among the Medicare trust funds, the OASDI trust funds, and the general fund of the Treasury. Estimated payments are made from the trust funds and then are reconciled, with interest, the next year when the actual costs are known. A positive figure represents a transfer to the Part D account in the SMI trust fund from the other trust funds. A negative figure represents a transfer from the Part D account in the SMI trust fund to the other funds.
Note: Totals do not necessarily equal the sums of rounded components.
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102
a. Revenues
The major sources of revenue for the Part D account are
(i) contributions of the Federal Government authorized to be
apportioned and transferred from the general fund of the Treasury;
(ii) premiums paid by eligible persons who voluntarily enroll; and
(iii) contributions from the States.
Of the total Part D revenue, $4.1 billion represented premium
amounts withheld from Social Security benefits or other Federal
benefit payments. Total premium payments, including those paid
directly to the Part D plans, amounted to an estimated $12.8 billion or
14.2 percent of total revenue.
In calendar year 2015, contributions received from the general fund of
the Treasury amounted to $68.4 billion, which accounted for
75.9 percent of total revenue. The payments from the States were
$8.9 billion.
Another source of Part D revenue is interest received on investments
held by the Part D account. Since this account holds a very low amount
of assets, and only for brief periods of time, the interest on the
investments of the account in calendar year 2015 was negligible
($11 million).
b. Expenditures
Part D expenditures include both the costs of prescription drug benefits
provided by Part D plans to enrollees and Medicare payments to retiree
drug subsidy (RDS) plans on behalf of beneficiaries who obtain their
primary drug coverage through such plans. Unlike Parts A and B of
Medicare, the Part D account in the SMI trust fund does not directly
support all Part D expenditures. In particular, enrollee premiums that
are paid directly to Part D plans, and thus do not flow through the
Part D account, finance a portion of these expenditures. However,
these premium amounts are included in the Part D account operations
(both income and expenditures) presented in this report. Total
expenditures are characterized as either benefits (representing the
gross cost of enrollees’ prescription drug coverage plus RDS amounts)
or Federal administrative expenses.
All expenses incurred by the Department of Health and Human
Services, the Social Security Administration, and the Department of
the Treasury in administering Part D are charged to the account. Such
administrative duties include making payments to Part D plans, fraud
Part D Financial Status
103
and abuse control activities, and experiments and demonstration
projects designed to improve the quality, efficiency, and economy of
health care services.
In addition, Congress has authorized expenditures from the trust
funds for construction, rental and lease, or purchase contracts of office
buildings and related facilities for use in connection with the
administration of Part D. The account expenditures include such costs.
However, the statement of Part D assets presented in this report does
not carry the net worth of facilities and other fixed capital assets,
because the value of fixed capital assets does not represent funds
available for benefit or administrative expenditures and is not,
therefore, pertinent in assessing the actuarial status of the funds.
Of the $89.8 billion in total Part D expenditures, $89.5 billion
represented benefits, as defined above, and the remaining $0.3 billion
was for Federal administrative expenses. The Medicare direct
premium subsidy and reinsurance subsidy, together with enrollee
premiums, implicitly cover administrative expenses incurred by
Part D plans.
c. Actual experience versus prior estimates
Table III.D2 compares the actual experience in calendar year
2015 with the estimates presented in the 2014 and 2015 annual
reports. A number of factors can contribute to differences between
estimates and subsequent actual experience. In particular, actual
values for key economic and other variables can differ from assumed
levels, lawmakers may adopt legislative and regulatory changes after
a report’s preparation, and new, high-impact drugs can enter the
market. Actual premiums in calendar year 2015 were 1 percent lower
than projected in last year’s report mainly due to slightly greater
participation of enrollees in lower premium plans than previously
projected. Benefit payments in 2015 were lower than estimated in the
previous report primarily due to lower-than-expected reconciliation
payments for contract year 2014 as well as greater-than-expected
coverage gap discounts for brand-name drugs for contract years 2014
and 2015. The actual State transfer was higher than projected last year
because the number of dual-eligible low-income beneficiaries was
higher.
The expected drug benefits submitted by the plan bids for 2015 were
lower than assumed in the 2014 report, and as a result the actual
premiums for 2015 were 6 percent lower than projected. However, the
actual government contributions and the benefit payments were
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104
higher than projected in the 2014 report because of the larger-than-
projected 2014 reconciliation amounts that plans received in 2015 due
to unexpected spending in 2014 for the new hepatitis C drugs. The
actual State transfer was higher than projected in the 2014 report
because the number of dual-eligible low-income beneficiaries was
slightly higher.
Table III.D2.—Comparison of Actual and Estimated Operations of the Part D Account in the SMI Trust Fund, Calendar Year 2015
[Dollar amounts in millions]
Comparison of actual experience with estimates for
calendar year 2015 published in:
2015 report 2014 report
Item Actual
amount Estimated amount1
Actual as a percentage of estimate
Estimated amount1
Actual as a percentage of estimate
Premiums from enrollees $12,758 $12,907 99% $13,620 94% State transfers 8,900 8,641 103 8,526 104 Government contributions 68,378 70,814 97 64,537 106 Benefit payments 89,453 92,280 97 86,265 104 1Under the intermediate assumptions.
d. Assets
The Department of the Treasury invests the portion of the Part D
account not needed to meet current expenditures for benefits and
administration in interest-bearing obligations of the U.S. Government.
The Social Security Act authorizes the issuance of special public-debt
obligations for purchase exclusively by the account. The law requires
that these special public-debt obligations shall bear interest at a rate
based on the average market yield (computed on the basis of market
quotations as of the end of the calendar month immediately preceding
the date of such issue) for all marketable interest-bearing obligations
of the United States forming a part of the public debt that are not due
or callable until after 4 years from the end of that month. Since the
inception of the SMI trust fund, the Department of the Treasury has
always invested the assets in special public-debt obligations.56
Table V.H10, presented in appendix H, shows the assets of the SMI
trust fund (Parts B and D) at the end of fiscal years 2014 and 2015.
As explained in section III.D2, the flexible apportionment of general
revenues for Part D eliminates the need to maintain a contingency
reserve. As a result, Part D assets are very low and are held only briefly
in anticipation of immediate expenditures.
56The Department of the Treasury may also make investments in obligations guaranteed
for both principal and interest by the United States, including certain federally
sponsored agency obligations.
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105
2. 10-Year Actuarial Estimates (2016-2025)
Section III.D2 provides detailed information concerning the short-
range financial status of the Part D account, including projected
annual income, outgo, differences between income and outgo, and trust
fund balances. The projected future operations of the Part D account
are based on the Trustees’ economic and demographic assumptions, as
detailed in the OASDI Trustees Report, as well as other assumptions
unique to Part D. Section IV.B2 presents an explanation of the effects
of the Trustees’ intermediate assumptions and other assumptions
unique to Part D on the estimates in this report. This section presents
estimates of the trust fund’s operations and financial status for the
next 10 years. Section III.D3 discusses the long-range actuarial status
of the trust fund.
Generally, the income to the Part D account includes the beneficiary
premiums described above and transfers from the general fund of the
Treasury to cover each year’s incurred benefit costs and other
expenditures. The language that has generally been included in the
Part D appropriation provides, without further Congressional action,
resources for benefit payments under the Part D drug benefit program
on an as-needed basis. The transfers from the Treasury reflect the
direct premium subsidy, amounts of reinsurance payments, RDS
amounts, low-income subsidies, net risk-sharing payments,
administrative expenses, and advanced discount payments. This
income requirement is reduced by the anticipated State transfers for
the full-benefit dually eligible beneficiaries who used to be covered
under Medicaid.
Until 2015, actual cash transfers from the Treasury were made on the
day the benefit payments to plans were due, typically the first business
day of a month, causing the Part D account balance at the end of a
month to include only a modest amount from the State transfers to the
account after the benefit payments were made. A new policy was
developed prior to the end of the 2015 fiscal year57 to transfer amounts
from the Treasury into the account 5 business days before the benefit
payments to the plans. As a result, the Trustees expect the Part D
account to include a more substantial balance at the end of most
months to reflect the new policy.
The beneficiary premiums and direct subsidy rate are calculated based
on the national average bid amounts and defined prior to each year’s
57The new policy was applied prior to the October 2015 plan payment and again prior to
the February 2016 plan payment. The Trustees expect this policy to be consistently
applied after February 2016.
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106
operations. The average basic premium constitutes 25.5 percent of the
expected total plan costs for basic Part D coverage. Beginning in 2011,
beneficiaries with modified adjusted gross incomes exceeding a
specified threshold pay income-related premiums in addition to the
premiums charged by the plans in which the individuals have enrolled.
The extra premiums are credited to the Part D trust fund account and
reduce the general fund financing amounts. Starting in 2011, the drug
manufacturers provide a 50-percent ingredient cost discount for brand-
name drugs in the coverage gap that reduces beneficiary out-of-pocket
expenses. Medicare Part D pays advanced discount payments
prospectively to the non-employer Part D plans and will be reimbursed
for these amounts once the plans receive the discounts from the drug
manufacturers.
Expenditures from the account include the premiums withheld from
beneficiaries’ Social Security benefits and transferred to the private
drug plans, the direct premium subsidy payments, reinsurance
payments, RDS amounts, low-income subsidy payments, net risk-
sharing payments, administrative expenses, and advanced discount
payments. As noted previously, the Trustees supplement these
expenditures to include the amount of enrollee premiums paid directly
to Part D plans, thereby providing an estimate of total Part D benefit
payments and other expenditures.
Projected Part D expenditures on direct premium subsidy payments,
RDS amounts, advanced discount payments, and administrative
expenses are affected by the sequestration of Medicare expenditures
required by current law. Reinsurance, low-income cost-sharing subsidy
amounts, and net risk-sharing payments are not affected. The
sequestration reduces benefit payments by 2 percent from April 1,
2013 through March 31, 2025 and by 4 percent from April 1, 2025
through September 30, 2025. Due to sequestration, non-salary
administrative expenses are reduced by an estimated 5 percent from
March 1, 2013 through September 30, 2025.
Table III.D3 shows the estimated operations of the Part D account
under the intermediate assumptions on a calendar-year basis through
2025.
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107
Table III.D3.—Operations of the Part D Account in the SMI Trust Fund (Cash Basis) during Calendar Years 2004-2025
1Premiums include both amounts withheld from Social Security benefits or other Federal payments and those paid directly to Part D plans.
2Includes, net of transfers from States, all government transfers required to fund benefit payments, administrative expenses, and State expenses for making low-income eligibility determinations. 3Payments from States with respect to the Federal assumption of Medicaid responsibility for drug expenditures for full-benefit dually eligible individuals.
4Includes payments to Part D plans, payments to retiree drug subsidy plans, payments to States for making low-income eligibility determinations, Part D drug premiums collected from beneficiaries, and transfers to Medicare Advantage plans and private drug plans. Includes amounts for the Transitional Assistance program of $0.4, $1.0, and $0.1 billion in 2004-2006, respectively. 5See text concerning nature of general revenue appropriations process and implications for contingency reserve assets. 6Section 708 of the Social Security Act modifies the provisions for the payment of Social Security benefits when the regularly designated day falls on a Saturday, Sunday, or legal public holiday. Payment of those benefits normally due January 3, 2010 actually occurred on December 31, 2009, and payment of benefits normally due January 3, 2016 occurred on December 31, 2015. Consequently, the Part D premiums withheld from these benefits were added to the Part D account on December 31, 2009 (about $0.2 billion) and December 31, 2015 (about $0.2 billion), respectively. Similarly, the expected payment date for those benefits normally due January 3, 2021 is December 31, 2020, and accordingly an estimated $0.4 billion will be added to the Part D account on December 31, 2020.
Note: Totals do not necessarily equal the sums of rounded components.
Table III.D4 shows prescription drug payment amounts in the
aggregate, on a per capita basis, and relative to the Gross Domestic
Product (GDP). It also shows rates of growth for the next 10 years
based on the intermediate set of assumptions.
Over the past 9 years, Part D benefit payments have increased by an
annual rate of 7.4 percent in aggregate and by 2.5 percent on a per
enrollee basis. These results reflect the rapid growth in enrollment as
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108
the new program began, together with a substantial increase in the
proportion of prescriptions filled with low-cost generic drugs and
patent expiration for certain major drugs in 2012. However, per
enrollee benefit payments have increased since last year’s report as a
result of continued growth in prescription drug prices and, more
specifically, a recent surge in the use of expensive specialty drugs,
including those for hepatitis C.
For 2015, per capita benefits increased faster than they had
historically because of price increases for brand-name drugs and the
significant amount of 2014 reconciliation payments by Medicare for the
unexpected use of the new hepatitis C drugs. These per capita benefits
are projected to remain high in 2016 due to the continuing growth in
cost for specialty drugs along with significant reconciliation payments
from Part D to plans in 2016, which are projected to occur because the
additional plan spending for several high-cost drugs to treat
hepatitis C was not fully factored into plan bids for the 2015 plan year.
Table III.D4.—Growth in Part D Benefits (Cash Basis) through December 31, 2025
1Other income contains Federal and State government contributions and interest. 2See footnote 6 of table III.D3.
Notes: 1. Totals do not necessarily equal the sums of rounded components. 2. Percentages are affected by economic cycles.
These alternatives provide two possible Part D scenarios. However,
given the considerable variation in future demographic, economic, and
healthcare-usage factors, actual Part D experience could fall outside of
this range. The low- and high-cost scenarios in this year’s report result
in a narrower dollar range than in years prior to 2014 due to a change
in the alternative assumptions in the 2014 Trustees Report.58 The GDP
58The Trustees’ alternative CPI assumptions were reversed in the 2014 report compared
with those in previous reports, so that the high-cost assumptions in prior reports are the
low-cost assumptions for the 2014 and later reports, and vice versa. Inflation rates are
now ordered across alternatives according to their effect on the OASDI actuarial balance.
This change resulted in a narrow range of impacts.
Part D Financial Status
111
assumptions for the alternative scenarios are also affected by the
assumption change. Therefore, spending as a percentage of GDP
provides better insight into the variability of spending than the
nominal dollar amounts, as shown in table III.D5.
The alternative projections shown in table III.D5 illustrate two
important aspects of the financial operations of the Part D account:
• Despite the differing assumptions underlying the three
alternatives, the balance between Part D income and expenditures
remains relatively stable. This result occurs because the premiums
and general revenue contributions underlying the Part D financing
are reestablished annually. Thus, Part D income automatically
tracks Part D expenditures fairly closely, regardless of the specific
economic and other conditions.
• As a result of the close matching of income and expenditures
described above, together with anticipated continuing flexibility in
the apportionment of general revenues, the need for a contingency
reserve to handle unanticipated fluctuations is minimal.
Adequacy of Part D Financing Established for Calendar Year 2016
As noted previously, the Part D account in the SMI trust fund will be
in financial balance indefinitely because the premiums paid by
enrollees and the amounts apportioned from the general fund of the
Treasury are determined each year so as to adequately finance Part D
expenditures. Moreover, the appropriation for Part D general revenues
has generally included an indefinite authority provision allowing for
amounts to be transferred to the Part D account on an as-needed basis.
This provision allows previously apportioned amounts to change
without additional Congressional action if those amounts are later
determined to be insufficient. Consequently, once an appropriation
with this provision has been made, no deficit will occur in the Part D
account, and no contingency fund will be necessary to cover deficits.59
As described in section III.C on the financial status of the Part B
account, it is important to maintain an appropriate level of assets to
cover the liability for claims that have been incurred but not yet
reported or paid. In the case of Part D, however, most such claims are
the responsibility of the prescription drug plans rather than the Part D
program. Accordingly, the Part D account is generally not at risk for
59The indefinite authority applies to all Part D outlays other than Federal administrative
expenses. Those amounts are specifically appropriated each year.
Actuarial Analysis
112
incurred-but-unreported claim amounts, and no asset reserve is
necessary for this purpose.
Another potential Part D liability exists to the extent that Part D
reinsurance payments and low-income cost-sharing subsidy payments
are based on plan estimates.60 Since actual Part D costs, as
subsequently determined, will generally differ from the plan bids,
payment adjustments are made after the close of the year as needed to
reconcile the accounts. When the plan bids have been below actual
costs, Medicare has made such settlements in favor of the plans from
the following year’s appropriated general revenues; thus, creation of a
reserve for payment of such settlement amounts is not required.
For these reasons, the Trustees have concluded that maintenance of
Part D account assets for contingency or liability purposes is
unnecessary at this time. Accordingly, evaluation of the adequacy of
Part D assets is also unnecessary, and the Part D account is considered
to be in satisfactory financial condition for 2015 and all future years as
a consequence of its basis for financing.
3. Long-Range Estimates
Section III.D2 presented the expected operations of the Part D account
over the next 10 years. This section describes the long-range
expenditures of the account under the intermediate assumptions. Due
to its automatic financing provisions, the Trustees expect adequate
financing of the Part D account into the indefinite future and so have
not conducted a long-range analysis using high-cost and low-cost
assumptions. The 10-year projections under the alternative
assumptions are presented in section IV.B2.
Table III.D6 shows the estimated Part D incurred expenditures under
the intermediate assumptions expressed as a percentage of GDP, for
selected years over the calendar-year period 2015-2090.61 The 75-year
projection period fully allows for the presentation of likely future
trends, such as the large increase in enrollees after 2010 as the baby
boom generation begins to receive benefits.
60These estimates are subject to actuarial review by the CMS Office of the Actuary. 61These estimated incurred expenditures are for benefit payments and administrative
expenses combined, unlike the values in table III.D4, which express only benefit
payments on a cash basis as a percentage of GDP.
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Table III.D6.—Part D Expenditures (Incurred Basis) as a Percentage of the Gross Domestic Product1
Calendar year Part D expenditures as a percentage of GDP
1Percent increase in year indicated over previous year, on an incurred basis. 2Reflects the allowances provided for in the prospective payment update factors. Also reflects the downward adjustments to price updates based on the 10-year moving average of economy-wide productivity growth in 2012 and later, and additional decreases in updates ranging from 0.1 percentage point to 0.75 percentage point from 2010 through 2019, as introduced by the ACA.
The input price index is a weighted average of the price proxies (prices
of specific inputs) used in delivery of HI inpatient services. The
methodology underlying this report utilizes least-squares regression
models for each price proxy to project this index. The process begins by
regressing the historical time series for each price proxy on one of three
independent variables: average hourly compensation, GDP deflator,
and CPI. The regression results are then applied to the projected
independent variables to produce projections for each detailed price
proxy, which are weighted together to produce the aggregate input
price index.
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The unit input intensity allowance is generally a downward
adjustment provided for by law in the prospective payment update
factor; that is, it is the amount subtracted from the input price index
to yield the update factor.62 Beginning in fiscal year 2004, the law
provides that increases in payments to prospective payment system
hospitals for covered admissions will equal the increase in the hospital
input price index for those hospitals that submit the required quality
measure data. For other hospitals, the increase will be slightly smaller.
For this report, the Trustees assume that all hospitals will submit
these data. Beginning in fiscal year 2010, the ACA mandates amounts
to be subtracted from the input price index, including the increase in
economy-wide productivity in 2012 and later, and amounts ranging
from 0.1 percentage point to 0.75 percentage point for 2010 through
2019. As a result of these adjustments, the unit input intensity
allowance, as indicated in table IV.A1, is negative throughout the first
10-year projection period.
Increases in payments for inpatient hospital services also reflect
growth in the number of inpatient hospital admissions covered under
HI. As shown in table IV.A1, increases in admissions are attributable
to growth in both HI fee-for-service enrollment and admission
incidence (admissions per beneficiary).63 The historical and projected
growth in enrollment reflects a more rapid increase in the population
aged 65 and over than in the total population of the United States, as
well as increasing numbers of disabled beneficiaries and persons with
end-stage renal disease. Growth in enrollment is expected to continue
and to mirror the ongoing demographic shift into categories of the
population eligible for HI benefits.
In recent years the choice of more beneficiaries to join private health
plans was an offsetting factor to the HI enrollment growth, as shown
in the “managed care shift effect” column of table IV.A1. In other
words, greater enrollment in private health plans reduced the number
of beneficiaries with fee-for-service Medicare coverage and thereby
reduced hospital admissions paid through fee-for-service. Private
62The update factors are generally prescribed on a fiscal-year basis, while table IV.A1 is
on a calendar-year basis. Calculations have therefore been performed to estimate the
unit input intensity allowance on the basis of calendar years. The sum of the input price
index and the unit input intensity allowance generally reflects the prescribed prospective
payment update factor, but on a calendar-year, rather than a fiscal-year, basis. 63This factor is estimated to be negative for most of the projection period, reflecting the
influx of beneficiaries aged 65 (and the resulting reduction in the average age of
beneficiaries) due to the retirement of the baby boom generation. By the end of the
projection period, the aging of this group is expected to increase the incidence of
admissions.
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Medicare health plan membership is projected to continue to grow for
most of the projection period.
Since the beginning of the prospective payment system (PPS),
inpatient hospital payments have varied based on the complexity of
admissions. These variations are primarily due to (i) the changes in
diagnosis-related group (DRG) coding as hospitals continue to adjust
to the PPS and (ii) the trend toward treating less complicated (and thus
less expensive) cases in outpatient settings, which results in an
increase in the average prospective payment per admission.
The average complexity of hospital admissions (case mix) is expected
to increase by 0.5 percent annually in fiscal years 2016 through 2025
as a result of an assumed continuation of the current trend toward
treating less complicated cases in outpatient settings, ongoing changes
in DRG coding, and the overall impact of new technology. This
assumption is based on Recommendation II-9 of the 2010-2011
Medicare Technical Review Panel.
Hospital payments are also affected by other factors, as reflected in the
“other sources” column of table IV.A1. For example, statutory budget
neutrality adjustments offset costs from significant increases in case
mix that occurred when the new Medicare severity diagnosis-related
group (MS-DRG) system was introduced in 2008. Although the law
limited the size of these adjustments in 2008 and 2009, it allows
subsequent recovery of any extra payments that resulted. The “other
sources” column reflects all of these actual and anticipated effects and
adjustments. In addition, one can attribute part of the increase from
“other sources” to the increase in payments for certain costs, not
included in the DRG payment, that are generally growing at a rate
slower than the input price index. These other costs include capital,
medical education (both direct and indirect), disproportionate share
hospital (DSH) payments, and payments to hospitals not included in
the prospective payment system. A particularly important change
affecting these costs is the reduction in Medicare DSH payments under
the ACA. This change reflects the major coverage expansions that
began in 2014 and that continue to result in significantly fewer
uninsured hospital patients.
Additional possible sources of changes in payments include (i) a shift
to higher-cost or lower-cost admissions due to changes in the
demographic characteristics of the covered population; (ii) changes in
medical practice patterns; and (iii) adjustments in the relative
payment levels for various DRGs, or addition/deletion of DRGs, in
response to changes in technology.
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The “other sources” column reflects, as appropriate, the impact of
certain enacted legislation, including the sequestration process. Also
reflected in this column is the impact of the estimated bonus payments
and penalties for hospitals due to the health information technology
incentives.
The increases in the input price index (less any intensity allowance
specified in the law), units of service, and other sources are
compounded to calculate the total increase in payments for inpatient
hospital services. The last column of table IV.A1 shows these overall
increases.
c. Fee-for-Service Payments for Skilled Nursing Facility,
Home Health Agency, and Hospice Services
To project fee-for-service payments for skilled nursing facilities (SNFs),
a method similar to that for inpatient hospitals is used. First, the
number of covered days is determined, and then the average
reimbursement per day is calculated. Historically, the number of days
of care covered in SNFs under HI has varied widely. This extremely
volatile experience has resulted, in part, from legislative and
regulatory changes and from judicial decisions affecting the scope of
coverage. From 2006 to 2008, utilization rates increased by fairly high
amounts. Since 2009, this trend has leveled off. The intermediate
projections assume that these increases in covered SNF days will
reflect the growth and aging of the population plus 1 percent annually,
as an underlying trend beginning in 2016. This assumption is based on
Recommendation II-10 of the 2010-2011 Medicare Technical Review
Panel.
As with hospitals, a least-squares regression model was used to
develop the market basket increases for SNFs. These market basket
increases are reduced by the increase in economy-wide productivity
beginning in 2012. Cost per day also increases by a case mix increase.
The implementation of the new resource utilization group-53 (RUG-53)
system of payment in 2006 was accompanied by an increase of over
7 percent in case mix for 2006 and more than 3 percent for 2007
through 2009. In 2010, a reduction of about 3.3 percent was applied to
all the rates to better match payments from the old payment system to
the new payment system. The implementation of a new RUG system
again caused a very large increase in case mix in 2011, and a reduction
of about 12.6 percent was applied in 2012 to once again match
payments. Since then, case mix increases have been between 1 and
2 percent each year. For the projection, the case mix increases are
assumed to grow at a level of 1.5 percent annually, based on
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Recommendation II-9 of the 2010-2011 Medicare Technical Review
Panel. The required reduction in costs due to sequestration is also
reflected in the projected expenditures. These assumed trends result
in projected rates of increase in cost per day that are assumed to
decline to a level slightly higher than increases in general earnings
throughout the projection period.
Table IV.A2 shows the resulting increases in fee-for-service
expenditures for SNF and other types of services.
Table IV.A2.—Relationship between Increases in HI Expenditures and Increases in Taxable Payroll1
1Percent increase in year indicated over previous year. 2Includes the declining share of costs drawn from HI for coverage of certain home health services transferred from HI to SMI Part B. 3Includes costs of Quality Improvement Organizations. 4The ratio of the increase in HI costs to the increase in taxable payroll. This ratio is equivalent to the percent increase in the ratio of HI expenditures to taxable payroll (the cost rate).
A similar methodology is used to project home health agency (HHA)
payments. For most historical years, HI experience with HHA
payments had shown an upward trend, frequently with sharp
increases in the number of visits from year to year. For 2006 through
2009, the increases were large. Moreover, in certain areas of the
country, outlier payments for treatment episodes increased at
extraordinary rates during this period, prompting special rules to limit
abusive practices. In 2010, limits were placed on the proportion of total
payments that an agency could receive in the form of outlier payments,
and prosecution of fraud cases resulted in the closing of a number of
purported home health agencies. There was a slight decrease in
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utilization in 2010, followed by large decreases in 2011 and 2012 and a
rebound in 2013 and 2014. Preliminary data for 2015 show a slight
decrease in utilization. For 2016 and the rest of the projection period,
these utilization and intensity increases are assumed to be equal to the
growth and aging of the population plus 1 percent annually. This
assumption is based on Recommendation II-11 of the 2010-2011
Medicare Technical Review Panel.
Reimbursement per episode of care64 is assumed to increase at a
slightly higher rate than increases in general earnings, but
adjustments to reflect statutory limits on HHA reimbursement per
episode are included where appropriate. As with other services, a least-
squares regression model was used to develop market basket increases,
which are reduced by the increase in economy-wide productivity
beginning in 2015. Costs also increase by a case mix increase factor.
Case mix increases have been modest and decreased over the last
several years before rebounding in 2013 and 2014. Based on
Recommendation II-9 of the 2010-2011 Medicare Technical Review
Panel, HHA case mix increases are projected to increase until reaching
1.5 percent annually beginning in 2016. CMS adjusted HHA payment
levels from 2008 through 2013 to gradually offset the financial effect of
the unduly high mix of services in the first and subsequent years.
Under the ACA, HHA payment rates are rebased starting in 2014, with
an estimated 14-percent reduction in payments to be phased in over a
4-year period. Projected HHA costs reflect these regulatory
adjustments. As is the case for all types of Medicare benefits, the
projected home health expenditures also reflect the specified
reductions due to sequestration. Table IV.A2 shows the resulting
increases in fee-for-service expenditures for HHA services.
HI covers certain hospice care for terminally ill beneficiaries. Hospice
payments were originally very small relative to total HI benefit
payments, but they have grown rapidly in most years and now
substantially exceed the level of HI home health expenditures. This
growth rate is composed of two factors: (i) the price update, which is a
function of the hospital market basket with an adjustment for
economy-wide productivity, and (ii) a residual factor, which includes
all other factors. This residual growth rate increased sharply through
2007, slowed from 2008 to 2014, and is expected to rebound slightly
and increase at the 2006-2012 level for the remainder of the projection
period. Although detailed hospice data are scant at this time, estimates
for hospice benefit payment increases are based on mandated daily
64Under the HHA prospective payment system, Medicare payments are made for each
episode of care, rather than for each individual home health visit.
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payment rates and annual payment caps, and these estimates assume
a deceleration in the growth in the number of covered days.
d. Private Health Plan Costs
HI payments to private health plans have generally increased
significantly from the time that such plans began to participate in the
Medicare program in the 1970s. Most of the growth in expenditures
has been attributable to the increasing numbers of beneficiaries who
have enrolled in these plans. Section IV.C of this report contains a
description of the private health plan assumptions and methodology.
e. Administrative Expenses
Historically, the cost of administering the HI trust fund has remained
relatively small in comparison with benefit amounts. The ratio of
administrative expenses to benefit payments has generally fallen
within the range of 1 to 3 percent. The short-range projection of
administrative cost is based on estimates of workloads and approved
budgets for intermediaries and CMS. In addition, the administrative
costs reflect an assumed 5-percent reduction due to the sequester for
the period April 2013 through September 2025. In the long range,
administrative cost increases are based on assumed increases in
workloads, primarily due to growth and aging of the population, and
on assumed unit cost increases equal to the increases in average
annual covered wages.
2. Summary of Aggregate Reimbursement Amounts on an
Incurred Basis under the Intermediate Assumptions
Table IV.A3 shows aggregate historical and projected reimbursement
amounts by type of service on an incurred basis under the intermediate
assumptions.
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Table IV.A3.—Aggregate Part A Reimbursement Amounts on an Incurred Basis [In millions]
1Percent increase for the year indicated over the previous year. 2On an incurred basis. 3Includes hospital, SNF, HHA, private health plan, and hospice expenditures; administrative costs; and costs of Quality Improvement Organizations. 4The Trustees calculate present values by discounting the future annual amounts of income and outgo using the projected effective rates of interest credited to the HI trust fund for the first 10 years and grade to the ultimate nominal interest rate assumption by year 15. The ultimate nominal interest rates for the intermediate, low-cost, and high-cost projections are 5.3, 6.4, and 4.2 percent, respectively.
4. Projections under Alternative Assumptions
Projected HI expenditures under current law are subject to
considerable uncertainty.65 To illustrate this uncertainty, HI costs
have been projected under three alternative sets of assumptions.
65Uncertainty in projecting HI expenditures also exists because of the possibility that
future legislation will affect unit payment levels, particularly for inpatient hospital
services. The projections presented throughout this report are on a current-law basis,
but it should be noted that legislation has been enacted that has affected the inpatient
PPS payment levels to hospitals in most of the past 30 years.
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Table IV.A4 shows a summary of the results. The assumed increases
in the economic factors affecting HI expenditures for the three
alternatives are consistent with those underlying the OASDI report.
Under the intermediate assumptions, HI costs beyond the first 25-year
projection period are based on the assumption that average per
beneficiary expenditures (excluding demographic impacts) will
increase at the baseline rates determined by the economic model
described in sections II.C and IV.D less the economy-wide productivity
adjustments. This rate is about the same as the increase in the Gross
Domestic Product (GDP) per capita in 2040 but would decelerate to
0.3 percentage point slower than GDP per capita by 2090. HI
expenditures, which were 3.4 percent of taxable payroll in 2015,
increase to 4.8 percent by 2040 and to 5.1 percent by 2090 under the
intermediate assumptions. Accordingly, if all of the projection
assumptions were realized over time, the HI income rates (3.91 percent
of taxable payroll summarized over 75 years) would be inadequate to
support the HI cost.
During the first 25-year projection period, the low-cost and high-cost
alternatives contain assumptions that result in HI costs increasing,
relative to taxable payroll increases, approximately 2 percentage
points less rapidly and 2 percentage points more rapidly, respectively,
than the results under the intermediate assumptions. Costs beyond the
first 25-year projection period assume that the 2-percentage-point
differential gradually decreases until 2065, when HI cost increases
relative to taxable payroll are approximately the same as under the
intermediate assumptions.
B. SUPPLEMENTARY MEDICAL INSURANCE
SMI consists of Part B and, since 2004, Part D. The benefits provided
by each part are quite different. The actuarial methodologies used to
produce the estimates for each part reflect these differences and thus
appear in separate sections (IV.B1 and IV.B2).
1. Part B
a. Cost Projection Methodology
Estimates under the intermediate assumptions are calculated
separately for each category of enrollee and for each type of service.
The estimates are prepared by establishing the allowed charges or
costs incurred per enrollee for a recent year (to serve as a projection
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base) and then projecting these charges through the estimation period.
The per enrollee charges are then converted to reimbursement
amounts by subtracting the per enrollee values of the deductible and
coinsurance. Aggregate reimbursement amounts are calculated by
multiplying the per enrollee reimbursement amounts by the projected
enrollment. In order to estimate cash expenditures, an allowance is
made for the delay between receipt of, and payment for, the service.
(1) Projection Base
To establish a suitable base from which to project the future Part B
costs, the incurred payments for services provided must be constructed
for the most recent period for which a reliable determination can be
made. Accordingly, payments to providers must be attributed to dates
of service, rather than to payment dates; in addition, the nonrecurring
effects of any changes in regulations, legislation, or administration,
and of any items affecting only the timing and flow of payments to
providers, must be eliminated. As a result, the rates of increase in the
Part B incurred cost differ from the increases in cash expenditures.
(a) Carrier Services
Private contractors acting for the Centers for Medicare & Medicaid
Services (CMS) pay reimbursement amounts for physician services,
durable medical equipment (DME), laboratory tests performed in
physician offices and independent laboratories, and other services
(such as physician-administered drugs, free-standing ambulatory
surgical center facility services, ambulance, and supplies). These
contractors, referred to as carriers, use CMS guidelines to determine
whether Part B covers billed services, establish the allowed charges for
covered services, and transmit to CMS a record of the allowed charges,
the applicable deductible and coinsurance, and the amount reimbursed
after reduction for coinsurance and the deductible.
The data are tabulated on an incurred basis. As a check on the validity
of the projection base, incurred reimbursement amounts are compared
with carrier cash expenditures.
(b) Intermediary Services
The same fiscal intermediaries that pay for HI services pay
reimbursement amounts for institutional services under Part B.
Institutional care covered under Part B includes outpatient hospital
services, home health agency services, laboratory services performed
in hospital outpatient departments, and such services as renal dialysis
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performed in free-standing dialysis facilities, services in outpatient
rehabilitation facilities, and services in rural health clinics.
Separate payment systems exist for almost all the Part B institutional
services. For these systems, the intermediaries determine whether
Part B covers billed services, establish the allowed payment for covered
services, and send to CMS a record of the allowed payment, the
applicable deductible and coinsurance, and the amount reimbursed
after reduction for coinsurance and the deductible.
For those services still reimbursed on a reasonable-cost basis, the costs
for covered services are determined on the basis of provider cost
reports. Reimbursement for these services occurs in two stages. First,
bills are submitted by providers to the intermediaries, and interim
payments are made on the basis of these bills. The second stage takes
place at the close of a provider’s accounting period, when a cost report
is submitted and lump-sum payments or recoveries are made to correct
for the difference between interim payments and final settlement
amounts for providing covered services (net of coinsurance and
deductible amounts). Tabulations of the bills are prepared by date of
service, and the lump-sum settlements, which are reported only on a
cash basis, are adjusted (using approximations) to allocate them to the
time of service.
(c) Private Health Plan Services
Private health plans with contracts to provide Part B services to
Medicare beneficiaries are reimbursed directly by CMS on either a
reasonable-cost or capitation basis. Section IV.C of this report contains
a description of the assumptions and methodology used to estimate
payments to private plans.
(2) Projected Fee-for-Service Payments for Aged Enrollees and
Disabled Enrollees without End-Stage Renal Disease (ESRD)
Part B enrollees with ESRD have per enrollee costs that are
substantially higher and quite different in nature from those of most
other beneficiaries. Accordingly, the analysis in this section excludes
their Part B costs. Those costs, as well as costs associated with
beneficiaries enrolled in private health plans, are discussed later in
this section.
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(a) Carrier Services
i. Physician Services
Medicare payments for physician services are based on a fee schedule,
which reflects the relative level of resources required for each service.
The fee schedule amount is equal to the product of the procedure’s
relative value, a conversion factor, and a geographic adjustment factor.
Payments are based on the lower of the actual charge and the fee
schedule amount.
Table IV.B1 shows the actual and projected physician updates for 2006
through 2025. The physician fee schedule updates are specified by law.
MACRA was enacted into law in 2015 and specifies the physician
update for every future year. The update was 0 percent for January-
June 2015 and 0.5 percent for July-December 2015. The update for
2016, relative to the payment level that applies for the last 6 months
of 2015, is 0.5 percent. For 2017-2019, the update each year will be
0.5 percent, and for 2020-2025 the annual update will be 0 percent.
Starting in 2026, the annual update for physicians in alternative
payment models (APMs) will be 0.75 percent, and, for all other
physicians, the update each year will be 0.25 percent. The modified
update shown in column 3 reflects the physician update and legislative
impacts, such as the addition of certain preventive services under the
ACA. The sequestration of all Medicare payments in 2013 through
September 2025 does not affect allowed charges and therefore is not
reflected in table IV.B1; rather, that impact is included in table IV.B2.
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Table IV.B1.—Components of Increases in Total Allowed Charges per Fee-for-Service Enrollee for Carrier Services
1Reflects the physician update and all legislation affecting physician services—for example, the addition of new preventative services enacted in 1997, 2000, and 2010. 2Equals combined increases in the modified update and residual factors. 3A physician payment price change occurred on June 1, 2010. 4A physician payment price change occurred on July 1, 2015. 5Beginning in 2017, payments under the laboratory fee schedule will no longer include an adjustment for economy-wide productivity. Instead, payments will reflect a survey of private sector lab payments and will be updated every 3 years. 6For 2019-2024, physicians in an APM will receive an incentive payment amounting to 5 percent of their Medicare payments for the year. For those same years, a total of $500 million is available for additional payment adjustment under the merit-based incentive payment system (MIPS) for certain high-performing physicians.
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Per capita physician charges have also changed each year as a result
of a number of other factors besides fee increases, including more
physician visits and related services per enrollee, the aging of the
Medicare population, greater use of specialists and more expensive
techniques, and certain administrative actions. The fourth column of
table IV.B1 shows the increases in physician charges per enrollee
resulting from these residual factors. Because the measurement of
increased allowed charges per service is subject to error, residual
causes implicitly include any such errors. Part B expenditures are
further affected by the sequestration of non-salary Medicare
expenditures. Based on the increases in table IV.B1, and incorporating
the sequestration of Medicare expenditures, table IV.B2 shows the
estimates of the average incurred reimbursement for carrier services
per fee-for-service enrollee.
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Table IV.B2.—Incurred Reimbursement Amounts per Fee-for-Service Enrollee for Carrier Services
1Effective January 1, 2014, a large portion of outpatient laboratory services were bundled into the outpatient prospective payment system. 2See footnote 5 of table IV.B1.
Note: Amounts do not reflect the effects of the IPAB.
Based on the increases in table IV.B3, table IV.B4 shows the estimates
of the incurred reimbursement for the various intermediary services
per fee-for-service enrollee. Each of these expenditure categories is
projected on the basis of recent trends in growth per enrollee, along
with applicable legislated limits on payment updates and the effects of
sequestration.
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Table IV.B4.—Incurred Reimbursement Amounts per Fee-for-Service Enrollee for Intermediary Services
1Excludes Federal Government and military retirees covered by either the Federal Employees Health Benefit Program or the TRICARE for Life program. Such programs qualify for the retiree drug subsidy, but the subsidy will not be paid since it would amount to the Federal Government subsidizing itself.
b. Cost Projection Methodology on an Incurred Basis
(1) Drug Benefit Categories
Projected drug expenses are allocated to the beneficiary premium,
direct subsidy, and reinsurance subsidy by the Part D premium
formula based on the benefit formula specifications. Meanwhile, the
additional premium and cost-sharing subsidies are projected for low-
income beneficiaries.
The statute specifies that the base beneficiary premium is equal to
25.5 percent of the sum of the national average monthly bid amount
and the estimated catastrophic reinsurance. The average premium
amount per enrollee is estimated based on the base beneficiary
premium with an adjustment to reflect enrollees’ tendency to select
plans with below-average premiums. Moreover, Part D collects income-
related premiums for individuals whose modified adjusted gross
income exceeds a specified threshold. The amount of the income-
related premium depends upon the individual’s income level. The extra
premium amount is the difference between 35, 50, 65, or 80 percent
and 25.5 percent applied to the national average monthly bid amount
adjusted for reinsurance.
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(2) Projections
The projections are based in part on actual Part D spending data
through 2015. These data include amounts for total prescription drug
costs, costs above the catastrophic threshold, plan payments, and low-
income cost-sharing payments.
The estimates under the intermediate assumptions are calculated by
establishing the total prescription drug costs for 2015 and then
projecting these costs with both Part D expenditure and enrollment
growth rates through the estimation period. As was the case in the
2015 Trustees Report, the growth rate assumptions for Part D
expenditures are based on a Part D-specific short-term trend model
and the national health expenditure (NHE) growth rate assumptions.71
This model provides the 2016 through 2018 drug-specific and
therapeutic-class-specific growth rate projections. A transition factor
is applied for 2019 and 2020 to converge to the NHE projected growth
rates in 2021, which are then used for the remainder of the projection
period. Based on the trend model, growth factors are somewhat higher
than the corresponding overall NHE drug spending growth rates.
The projected Part D expenditure growth rate is adjusted to account
for the financial effects of the closing of the coverage gap under the
ACA. Table IV.B8 shows the historical and projected Part D per capita
growth rates along with the NHE trends.
To determine the estimated benefits for Part D, the total per capita
drug costs are adjusted for two key factors. First, Part D benefit costs
are reduced for the total amount of rebates that the prescription drug
plans receive from drug manufacturers. Second, the plans incur
administrative costs for plan operation and earn profits. Table IV.B8
displays these key factors affecting Part D expenditure estimates.
71Based on Recommendation II-28 of the 2010-2011 Medicare Technical Review Panel.
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Table IV.B8.—Key Factors for Part D Expenditure Estimates1
1These factors do not reflect the impact of the sequestration for 2013-2025. 2The CMS Office of the Actuary expects to publish full information on the updated NHE projections by July 2016. 3Values reflect ACA add-on and other law changes. 4Expressed as a percentage of total drug costs. 5Expressed as a percentage of plan benefit payments.
(3) Manufacturer Rebates
Prescription drug plans can negotiate rebates with drug
manufacturers. Actual rebates for 2014 were approximately
14.3 percent of total prescription drug costs, which was higher than the
plans estimated in their corresponding bid submissions. Plans
increased their projected rebates again for 2015; however, because of
the timing for bid submissions, significant rebates on hepatitis C drugs
were likely not included in the 2015 plan bids. Accordingly, the
projected actual rebate level is assumed to be higher than the average
rebate level submitted in the 2015 plan bids. In the 2016 plan bids, the
average rebate increased significantly, and thus rebates are projected
to increase significantly in 2016, as shown in table IV.B8.72
(4) Administrative Expenses
Administrative costs and profit margins are estimated from 2016 plan
bids. Administrative expenses are projected to grow at the same rate
72These are average rebate percentages across all prescription drugs. Generic drugs,
which represent about 86 percent of all Part D drug use in 2015, typically do not carry
manufacturer rebates. Many brand-name prescription drugs carry substantial rebates.
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as wages, and profit margins are projected to grow at the same rate as
per capita benefits. Since drug expenses grow faster than
administrative costs, the administrative expenses as a percentage of
benefits slowly decrease over time even though health insurance plans
are assessed an annual insurer fee by the ACA beginning in 2014, as
shown in table IV.B8. However, under the Consolidated
Appropriations Act, 2016, collection of the annual insurer fee will be
suspended in 2017, causing a reduction in 2017 and an increase in
2018.
(5) Incurred Per Capita Reimbursements
Table IV.B9 shows estimated enrollments and average per capita
reimbursements for beneficiaries in private prescription drug plans,
low-income beneficiaries, and beneficiaries in RDS plans. In a manner
similar to that for 2014, the 2015 Part D reimbursements continued to
grow significantly faster mainly due to the increased use of new and
expensive hepatitis C drugs in that year and the higher cost trend for
other specialty drugs. The direct subsidy and retiree drug subsidy are
affected by the sequestration of Medicare expenditures, which applies
from April 1, 2013 to September 30, 2025. Under the sequestration,
Medicare benefit payments will be reduced by a specified percentage,
and administrative expenses will be reduced by an assumed 5 percent.
Table IV.B9.—Incurred Reimbursement Amounts per Enrollee for Part D Expenditures
Private plans (PDPs and MA-PDs)
All beneficiaries Low-income subsidy Retiree drug subsidy
1Total premiums paid to Part D plans by enrollees (directly, or indirectly through premium withholding from Social Security benefits). 2Positive amounts represent net loss-sharing payments to plans, and negative amounts are net gain-sharing receipts from plans. Other payments are one-time in nature. In addition to the risk-sharing amounts, the figures shown in 2006 and 2007 include the reimbursement of State costs under the Medicare Part D transition demonstration. The amount in 2010 includes the $250 rebate to the beneficiaries spending more than the initial coverage limit.
Note: Amounts do not reflect the effects of the IPAB.
d. Projections under Alternative Assumptions
Part D expenditures for the low-cost and high-cost alternatives were
developed by modifying the estimates under the intermediate
assumptions. Separate modifications were applied to the assumptions
for the 2015 projection and to the assumptions for the projected years
2016-2025.
The 2015 base modifications include the following adjustments, since
final data for 2015 will not be available until later in 2016:
• ±2 percent to account for the uncertainty of the completeness of
the actual spending in 2015. The high-cost scenario increases the
spending by 2 percent, and the low-cost scenario decreases the
spending by 2 percent.
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• ±2 percent for the average manufacturer rebate that drug plans
negotiate. The high-cost scenario decreases the average rebate by
2 percent, and the low-cost scenario increases the average rebate
by 2 percent.
For the projections beyond 2015, the per capita drug costs for the high-
cost and low-cost scenarios are increased, relative to GDP, 2 percent
more rapidly and 2 percent less rapidly, respectively, than under the
intermediate assumptions. In addition, for RDS participation,
participation in the low-income subsidies, and the participation rate
for Part D-eligible individuals who do not qualify for the low-income
subsidy or receive coverage through employer-sponsored plans,
assumptions vary in the alternative scenarios. Table IV.B11 compares
these varying assumptions.
Table IV.B11.—Part D Assumptions under Alternative Scenarios for Calendar Years 2015-2025
Alternatives
Calendar year Intermediate assumptions Low-cost High-cost
Participation of retiree drug subsidy beneficiaries as a percentage of Part D enrollees 2015 5.4 % 5.4 % 5.4 % 2016 4.4 4.4 4.4 2017 3.6 4.5 2.5 2018 2.8 4.5 1.1 2019 2.3 4.5 — 2020 1.8 4.5 — 2021 1.8 4.6 — 2022 1.8 4.6 — 2023 1.8 4.6 — 2024 1.8 4.6 — 2025 1.8 4.6 —
Participation of low-income beneficiaries as a percentage of Part D enrollees 2015 28.9 28.9 28.9 2016 28.1 28.1 28.1 2017 27.9 27.7 28.2 2018 27.7 27.3 28.3 2019 27.7 26.6 29.0 2020 27.7 26.0 29.6 2021 27.7 25.4 30.3 2022 27.7 24.7 31.1 2023 27.7 24.1 31.8 2024 27.7 23.6 32.5 2025 27.7 23.0 33.3
Part D participation rate of the non-employer and non-low-income Part D-eligible individuals 2015 60.9 60.9 60.9 2016 62.0 62.0 62.0 2017 63.0 61.0 65.0 2018 64.0 59.9 67.8 2019 64.0 59.9 67.9 2020 64.1 59.9 67.9 2021 64.1 59.9 67.9 2022 64.1 59.9 67.9 2023 64.1 59.9 67.9 2024 64.1 59.9 67.9 2025 64.1 59.8 67.9
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C. PRIVATE HEALTH PLANS
1. Legislative History
Dating back to the 1970s, some Medicare beneficiaries have chosen to
receive their coverage for Part A and Part B services through private
health plans. Over time, numerous pieces of legislation have been
enacted that have increased or decreased the attractiveness of private
plan coverage.
The foundation of the current program was established by the
Medicare Prescription Drug, Improvement, and Modernization Act of
2003 (Medicare Modernization Act or MMA), which renamed most of
the private plans as Medicare Advantage (MA) plans. The MMA also
formally designated all private health insurance coverage options
available through Medicare as Part C.73
Beginning in 2006, payments are based on competitive bids and their
relationship to corresponding benchmarks, which are based on an
annually developed ratebook. Also, rebates were introduced and are
used to provide additional benefits not covered under Medicare, reduce
cost-sharing, and/or reduce Part B or Part D premiums. From 2006
through 2011, rebates were calculated as 75 percent of the difference,
if any, between the benchmark and the bid.
In addition to the plan types that already existed, the MMA provided
for the establishment of regional preferred provider organizations
(RPPOs) and special needs plans (SNPs). Unlike other MA plans,
which define their own service areas, RPPOs operate in pre-defined
service areas referred to as regions and have special rules for
capitation payment benchmarks, and they received special incentives
under the MMA.
SNPs are products designed for, and marketed to, these special
population groups: Medicaid dual-eligible beneficiaries, individuals
with specialized chronic conditions, and institutionalized beneficiaries.
The statutory authority for SNPs, which has been extended several
times previously, is scheduled to expire on January 1, 2019.
The ACA made fundamental changes to MA funding by linking the
benchmark rates to Medicare fee-for-service costs and by requiring the
73Of Medicare beneficiaries enrolled in private plans, about 97 percent are in Medicare
Advantage plans, with the remainder in certain holdover plans reimbursed on a cost
basis rather than through capitation payments.
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use of quality measures to determine eligibility for bonuses and the
share of bid savings versus benchmarks to be provided as a rebate.
Beginning in 2012, the ACA requires the MA county-level benchmarks
to be based on a multiple of estimated fee-for-service costs in the
county. The factor applied for a given county is based on the ranking
of its fee-for-service cost relative to that for other counties, and the
factors are phased in. The 25 percent, or quartile, of counties with the
highest fee-for-service costs will have a factor of 95 percent of county
fee-for-service costs; the second quartile, 100 percent; the third
quartile, 107.5 percent; and the lowest quartile, 115 percent. Prior to
the ACA, most county benchmarks were in the range of
100-140 percent of local fee-for-service costs.
Starting in 2012, plans are eligible to receive specified increases to
their benchmark based on their quality rating scores. The statutory
provisions call for a bonus of 5 percent for plans with at least a 4-star
rating.
The bonuses are doubled for health plans in a qualifying county,
defined as a county in which (i) per capita spending in original
Medicare is lower than average; (ii) 25 percent or more of eligible
beneficiaries enrolled in Medicare Advantage as of December 2009; and
(iii) the benchmark rate in 2004 was based on the minimum amount
applicable to an urban area. There are special bonus provisions for
newly established and low-enrollment plans.
The ACA benchmarks will phase in over 2, 4, or 6 years, depending
upon the size of the benchmark reduction, with a longer phase-in
schedule for areas in which the benchmark decreases by larger
amounts. As of January 2015, the phased-in benchmarks, including
bonuses, are capped at the pre-ACA level.
The ACA also made changes regarding the share of the excess of
benchmarks over bids to be paid to the plan sponsors as rebates, which
the legislation varies based on quality. The highest quality plans
(4.5 stars or higher) will receive a 70-percent rebate, plans with a
quality rating of at least 3.5 stars and less than 4.5 stars will receive a
65-percent rebate, and plans with a rating of less than 3.5 stars will
receive a 50-percent rebate. Finally, the ACA requires that private
insurers pay an assessment, or fee, based on their revenues from the
prior year. The fees, which were first collected in 2014, apply to most
health insurance sectors, including the majority of Medicare private
health plans. Recent legislation requires a one-year moratorium on
these fees for 2017.
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It is important to note that Medicare coverage provided through
private health plans, or Part C, does not have separate financing or an
associated trust fund. Rather, the Part A and Part B trust funds are
the source for payments to such private health plans.
2. Participation Rates
a. Background
To account for the distinct benefit, enrollment, and payment
characteristics of private health plans, enrollment and spending trends
for such plans are analyzed at the product level:
• Local coordinated care plans (LCCPs), which include health
maintenance organizations (HMOs), HMOs with a point-of-service
option, local preferred provider organizations (PPOs), provider-
sponsored organizations (PSOs), and medical savings accounts.
• Private fee-for-service (PFFS) plans.
• Regional PPO (RPPO) plans.
• Special needs plans (SNPs).
• Other products, which include cost plans, Program of All-Inclusive
Care for the Elderly (PACE) plans, and Medicare-Medicaid plans
(MMPs).
All types of coverage except for those represented in the “other”
category are Medicare Advantage plans. Also, the values represented
in each category include enrollment not only in plans available to all
beneficiaries residing in the plan’s service area, but also in plans
available only to members of employer or union groups.
b. Historical
One intent of the MMA was to establish higher payment rates
beginning in 2005—the year that represented the first post-MMA
opportunity for plan expansion. Between 2005 and 2015, private plan
enrollment grew by 11.7 million or 202 percent, compared to growth in
the overall Medicare population of 30 percent for the same period.
The Trustees previously estimated that plan enrollment would
decrease, starting in 2011, as a result of the benchmark and rebate
changes in the ACA. In practice, enrollment continued to increase from
2011 through 2015 in part due to higher payments to MA plans than
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previously projected. These payments are higher because of various
policy actions that offset some of the anticipated payment reductions.
PFFS enrollment dropped 89 percent between 2009 and 2015 primarily
due to plan reaction to new statutory provider network requirements
beginning in 2011. Most of the enrollees in terminating PFFS plans
transferred to a LCCP or RPPO plan.
The 2015 enrollment includes 3.1 million beneficiaries with coverage
through employer-only or union-only plans, the vast majority of whom
are in LCCPs.
c. Projected
Now that the majority of the ACA benchmark phase-in has been
completed, a new approach is being used in this report to project future
private health plan enrollment. The concept of this approach is to
group counties by common characteristics and to model each of these
groups using 2011 through 2015 base data, as follows:
• One group for Puerto Rico.
• One group for “cost plan” counties (defined as Part C enrollment in
cost plans of at least 35 percent and a minimum Part C penetration
rate of 10 percent in 2011).
• Ten groups for urban counties as defined by the fiscal year 2011
core-based statistical area (CBSA) designation. The deciles were
compiled based on 2011 penetration rates with an approximately
equal number of Part A and Part B beneficiaries in each group.
• Five groups for rural counties as defined by the fiscal year 2011
CBSA designation. The quintiles were compiled based on 2011
penetration rates with an approximately equal number of Part A
and Part B beneficiaries in each group.
The projected enrollment is estimated by calculating the penetration
growth rates for 2011 through 2015 for each category described above
and extrapolating those results through 2025. These growth rates are
applied to the enrollment distribution for each county’s specific 2016
plan type (for example, LCCP, PFFS, RPPO, and SNP) and are
adjusted to reflect applicable legislative changes to the program, as
described in more detail below.
Although the new enrollment projection methodology has been
implemented as explained above, the private Medicare health plan
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155
enrollment projections for the 2016 Trustees Report are not very
different from the projections in the 2015 report. The share of Medicare
enrollees in private health plans is projected to increase from
31.7 percent in 2015 to 35.4 percent in 2025. Modest increases are
expected in private plan penetration rates between 2018 and 2024 due
to higher relative bonus payments stemming from assumed
improvements in quality rating scores.
SNP enrollment is expected to increase by 15 percent from 2015
through 2018. The statutory authority for SNPs will expire on
January 1, 2019.74 Beginning in 2019, it is expected that the majority
of existing SNP enrollees will join LCCPs and that the remaining
enrollees will transfer to the Medicare fee-for-service program.
The growth rate in LCCPs is expected to be 5 percent in 2016 after
increasing 7 percent in 2015. The expected increase in LCCPs in 2016
follows closely the overall 2016 increase in private Medicare health
plan membership of 6 percent. A spike in enrollment of 21 percent is
expected in 2019 due to the influx of enrollees from terminating SNPs.
The “other” category is expected to fluctuate over the next several years
mainly due to enrollment in MMPs, which represent those health plans
that are under contract with CMS and States to provide comprehensive
and coordinated care for Medicare-Medicaid enrollees. Since the
launch of the first capitated demonstration in October 2013,
enrollment in MMPs has grown nationally from approximately
3,400 enrollees in a single State to over 397,000 enrollees across nine
States in September 2015. These contracts are currently set to expire
by 2020. It is assumed that once the contracts expire, the majority of
the MMP enrollment will return to the Medicare fee-for-service
program.
Growth in the “other” category is expected to be 13 percent in 2016
after increasing 49 percent in 2015 due to the influx of MMP
enrollment. Total growth in this category is expected to amount to
21 percent between 2017 and 2019 before a decline of 20 percent in
2020 and a 9-percent decrease in 2021. Cost plans, along with MMPs,
make up the majority of the enrollment in this coverage category. The
historical and projected enrollment changes in cost plans are much
more stable than the changes in MMPs.
74In practice, the SNP authority has been set to expire as far back as 2008 but has been
routinely extended by lawmakers.
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Table IV.C1.—Private Health Plan Enrollment1 [In thousands]
1Most private plan enrollees are eligible for Medicare Part A and enrolled in Medicare Part B. Some enrollees have coverage for only Medicare Part B. For example, in 2009 the Part B-only private plan enrollment consisted of 3,000 in LCCPs, 2,000 in PFFS plans, and 68,000 in the “other” coverage category. 2The statutory authority for SNPs is scheduled to expire on January 1, 2019.
3. Cost Projection Methodology
a. Background
Benchmarks form the foundation for payments to Medicare Advantage
plans. Along with geographic, demographic, and risk characteristics of
plan enrollees, these values determine the monthly prospective
payments made to private health plans. Medicare Advantage
benchmarks vary substantially by county. Prior to 2012, benchmarks
had been in the range of 100 percent of local fee-for-service costs (for
Parts A and B) to more than 200 percent of such costs in a few areas.
Under the ACA, benchmarks will transition to the range of
95-115 percent of fee-for-service costs, plus applicable quality bonuses.
For non-RPPO plans, a plan’s benchmark is an average of the statutory
capitation ratebook values, weighted by projected plan enrollment in
each county in the plan’s service area. For RPPOs, the benchmark is a
blend of the weighted ratebook values for all Medicare-eligible
beneficiaries in the region and an enrollment-weighted average of
RPPO bids for the region. The weight applied to the bid component to
calculate the blended benchmark is the national Medicare Advantage
participation rate.
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Plans submit bids equal to their projected per enrollee cost of providing
the standard Medicare Part A and Part B benefits. Plans with bids
below the benchmark apply the rebate share of the savings to aid plan
enrollees through coverage of Part A and Part B cost-sharing, coverage
of additional non-drug benefits, and/or reduction in the Part B or
Part D premium. From 2006 to 2011, the rebate share of the difference
between a plan’s benchmark and bid was 75 percent. For 2012 and
later, the rebate percentage is based on the quality rating of the health
plan and ranges from 50 to 70 percent. Beneficiaries choosing plans
with bids above the benchmark must pay for both the full amount of
the difference between the bid and the benchmark and the projected
cost of the plans’ supplemental benefits.
Medicare capitation payments to a Medicare Advantage plan are a
product of the standardized plan bid, which is equal to the bid divided
by the plan’s projected risk score, and the actual enrollee risk score,
which is based on demographic characteristics and medical diagnosis
data. The risk score for a given enrollee may be adjusted
retrospectively since CMS receives diagnosis data after the payment
date.
Rebate payments are based on the projected risk profile of the plan and
are not adjusted based on subsequent actual risk scores.
b. Incurred Basis
Private health plan expenditures are forecast on an incurred basis by
coverage type. The bid-based expenditures for each quarter are a
product of the average enrollment and the projected average per capita
bid. Similarly, the rebate expenditures are a product of enrollment and
projected average rebates.
Annual per capita benchmarks, bids, and rebates were determined on
an incurred basis for calendar years 2006-2015 for each coverage
category. These amounts include adjustments processed after the
payment due date for retroactive enrollment and risk score updates.
Benchmark growth for 2015 and later will be significantly lower than
historical trends because of the phase-in of the fee-for-service-based
ratebook beginning in 2012, which will result in lower benchmark rates
in most areas. Also, most price updates in Medicare fee-for-service are
lowered by the legislated changes in the ACA and MACRA.
Private health plan expenditures are affected by the sequestration of
non-salary Medicare expenditures. Under the sequestration, private
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health plan benefit payments will be reduced by a specified percentage.
The trend in the per capita bids for 2017 is estimated to be equal to the
average of the fee-for-service trend and the benchmark trend after
adjusting for the one-year moratorium in insurer fees. For years 2018
and later, the trend in the per capita bids is estimated to be equal to
that of beneficiaries enrolled in Medicare fee-for-service.
c. Cash Basis
Cash Medicare Advantage expenditures are largely identical to
incurred amounts, since both arise primarily from the monthly
capitation payments to plans. Small cash payment adjustments are
developed from incurred spending by accounting for the payment lag
that results from CMS’ receipt of post-payment diagnosis data,
retroactive enrollment notifications, and corrections in enrollees’
demographic characteristics.
Table IV.C2 shows Medicare private plan expenditures on an incurred
and cash basis. The incurred payments are reported separately for the
bid-related and rebate expenditures. As noted, most payments to plans
are made as they are incurred, and cash and incurred amounts are
generally the same.
Table IV.C2.—Medicare Payments to Private Health Plans, by Trust Fund [Dollar amounts in billions]
1The bid category includes all expenditures for non-Medicare Advantage coverage. 2The remaining percentage is paid from the Part B account of the SMI trust fund.
Note: Amounts do not reflect the effects of the Independent Payment Advisory Board (IPAB).
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d. Incurred Expenditures per Enrollee
Table IV.C3 shows estimated incurred per enrollee expenditures for
beneficiaries enrolled in private health plans. It combines the values
for expenditures from the Part A and Part B trust funds.
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Table IV.C3.—Incurred Expenditures per Private Health Plan Enrollee1 Calendar year LCCP PFFS RPPO SNP2 Other Total
1Values represent the sum of per capita expenditures for Part A and Part B. 2The statutory authority for SNPs is scheduled to expire on January 1, 2019. 3The bid category includes all expenditures for non-Medicare Advantage coverage.
Note: Amounts do not reflect the effects of the IPAB.
Average Medicare payments per private plan enrollee vary by
geographic location of the plan, plan efficiency, and average reported
health status of plan enrollees. LCCPs and SNPs tend to be located in
urban areas where prevailing health care costs tend to be above
average. Conversely, PFFS plans and RPPOs generally reflect a more
rural enrollment. These factors complicate meaningful comparisons of
average per capita costs by plan category.
In general, the per capita increases in bids for 2006 through 2009 were
in the single-digit range and were correlated with the Medicare fee-for-
service trend and the change in risk profile of the plan populations. Per
capita bid increases were flat from 2010 through 2015, increasing by
0.8 percent in total for those years. Per capita bid payments declined
by 1.3 percent in 2013 due to the sequester of Medicare payments,
increased by 1.0 percent in 2015, and are expected to increase again in
2016 by 2.7 percent. For 2017, the overall per capita bid trend is
expected to be the average of the growth in Medicare fee-for-service
expenditures and the benchmark growth after adjusting for the
one-year moratorium in insurer fees. For 2018 and later, the per capita
bid trend is expected to be equal to the growth in per capita Medicare
fee-for-service expenditures. After 2021, average Medicare payments
to private plans per enrollee are assumed to follow the aggregate
growth trends of the HI and SMI Part B per capita benefits, as
described in section IV.D of this report.
There was significant variation in the per capita trend in rebates for
2006 through 2009; this variation reflected the difference in the annual
trend between bids and benchmarks. All types of coverage experienced
significant decreases in rebates for 2010 as a result of the reduction in
risk-adjusted benchmarks—both in absolute terms and relative to the
change in bids. The overall per capita rebate growth rate was flat from
2010 through 2013. Per capita rebates declined significantly in 2014,
and to a lesser extent in 2015, due in part to the sequester, the phase-
in period of the fee-for-service-based ratebook, and the lower statutory
share of benchmark-versus-bid savings to be provided as a rebate.
Beginning in 2016, modest annual increases in per capita rebates are
expected.
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D. LONG-RANGE MEDICARE COST GROWTH ASSUMPTIONS
Sections IV.A, IV.B, and IV.C have described the detailed assumptions
and methodology underlying the projected expenditures for HI
(Part A), SMI (Parts B and D), and private health plans (Part C) during
2016 through 2025. These projections are made for individual
categories of Medicare-covered services, such as inpatient hospital care
and physician services.
As the projection horizon lengthens, it becomes increasingly difficult to
anticipate changes in the delivery of health care, the development of
new medical technologies, and other factors that will affect future
health care cost increases. Accordingly, rather than extending the
detailed projections by individual type of service for all future years,
the Trustees use a more aggregated basis for setting cost growth
assumptions in the long range. With enactment of the ACA and
MACRA, such increases are subject to greater uncertainty in the long
term, especially for the Medicare program.
The assumed long-range rate of growth in annual Medicare
expenditures per beneficiary for this year’s report is based on statutory
price updates and volume and intensity growth derived from the
“factors contributing to growth” model, which decomposes the major
drivers of historical and projected health spending growth into distinct
factors. The Trustees assume that the productivity reductions to
Medicare payment rate updates will reduce volume and intensity
growth by 0.1 percent below the factors model projection. The Trustees’
methodology is consistent with Finding III-2 and Recommendation
III-2 of the 2010-2011 Medicare Technical Review Panel.75
Beginning with the 2001 Trustees Report, the Trustees assumed that
the increase in average expenditures per beneficiary for the 25th
through 75th years of the projection would equal the growth in per
capita GDP plus 1 percentage point,76 as recommended by the 2000
Medicare Technical Review Panel. Starting with the 2006 report, the
Trustees revised the methodology to provide for a more gradual
transition from historical health cost growth rates, which had been
roughly 2 to 3 percentage points above the level of GDP growth, to the
ultimate assumed level of GDP plus 0 percent just after the 75th year
and for the indefinite future. The year-by-year growth rate
75The Panel’s final report is available at http://aspe.hhs.gov/health/reports/2013/
MedicareTech/TechnicalPanelReport2010-2011.pdf. 76This assumed increase in the average expenditures per beneficiary excludes the
impacts of the aging of the population and changes in the gender composition of the
Medicare population, which the Trustees estimated separately.
and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html. 81Resource-based productivity is defined as the real value of provider goods and services
divided by the real value of the resources (inputs) used to produce the goods and services,
whereas price changes are measured across constant products—that is, defined health
services with a constant mix of inputs. Resource-based productivity is used for this
decomposition, rather than outcomes-based productivity (which incorporates the
estimated value of improvements in health resulting from the services) because Medicare
and most other payers reimburse providers based on their resource use. 82A third factor, provider profit margins, is assumed to remain constant over the long
range. 83Information on updated estimates of hospital productivity is available at
1Section 708 of the Social Security Act modifies the provisions for the payment of Social Security benefits when the regularly designated day falls on a Saturday, Sunday, or legal public holiday. Payment of those benefits normally due January 3, 2010 actually occurred on December 31, 2009, and payment of benefits normally due January 3, 2016 occurred on December 31, 2015. Consequently, the Part B and Part D premiums withheld from these benefits and the associated Part B general revenue contributions were added to the Part B or Part D account, as appropriate, on December 31, 2009 (about $14.8 billion for Part B and about $0.2 billion for Part D) and December 31, 2015 (about $7.5 billion for Part B and about $0.2 billion for Part D), respectively. Similarly, the payment date for those benefits normally due January 3, 2021 will be on December 31, 2020, and accordingly an estimated $13.9 billion will be added to the Part B account, and an estimated $0.4 billion will be added to the Part D account, on December 31, 2020.
Note: Totals do not necessarily equal the sums of rounded components.
As indicated in table V.B1, Medicare expenditures have increased
rapidly during most of the program’s history. From 1985 to 2015,
expenditures grew at an average annual rate of 7.6 percent, and they
are projected to increase at an average annual rate of 7.1 percent from
2015 through 2025.
Through most of Medicare’s history, trust fund income has kept pace
with increases in expenditures.90 The Trustees estimate that total
90This balance resulted from periodic increases in HI payroll tax rates and other HI
financing, from annual increases in SMI premium and general revenue financing rates
(to cover the following year’s estimated expenditures), and from frequent legislation
designed to slow the rate of growth in expenditures.
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181
Medicare income will increase at a rate (7.0 percent annually) similar
to that for expenditures from 2015 through 2025.
The Department of the Treasury has invested past excesses of income
over expenditures in U.S. Treasury securities, with total trust fund
assets accumulating to $263.2 billion at the end of calendar year 2015.
Combined assets decreased from 2009 through 2015 and are estimated
to increase in 2016. The change in assets fluctuates slightly over the
remainder of the short-range projection period due to the timing of
premium collections, as described in the footnote to table V.B1, and the
return of HI deficits. The shift from the actual declines in total
Medicare trust fund assets from 2009 through 2015 to significant
expected growth in assets from 2016 through 2020 occurs as key
provisions of the ACA phase in and as the lower provider payment
updates compound over time.91
The ACA established a 15-member Independent Payment Advisory
Board (IPAB) to develop and submit proposals to Congress aimed at
extending the solvency of Medicare, slowing Medicare cost growth, and
improving the quality of care delivered to Medicare beneficiaries. The
IPAB is required to submit proposals to the President the year
following a determination that the projected rate of growth in Medicare
spending per beneficiary exceeds a target growth rate.92 Since 2013,
the Chief Actuary at CMS has been required to determine the projected
and target growth rates. If the Chief Actuary makes a determination
that the projected Medicare per capita growth rate exceeds the per
capita target growth rate in the implementation year, the Chief
Actuary will establish a savings target for that year. For the 2013
through 2016 determination years, the target growth rates have not
been exceeded.
For a given determination year, the rates of growth for Medicare
spending and the target are calculated as the 5-year average consisting
of the 2 prior years, the current year, and the 2 following years. For
example, for the 2016 determination year, 2017 is the proposal year,
2018 is the implementation year, and the 5-year period is 2014-2018.
For determination years 2013 through 2017, the target growth rate is
91See sections III.B, III.C, and III.D regarding the asset projections for HI and Part B
and Part D of SMI, separately. 92Beginning in 2019, the ACA provides an exception to the requirement that the IPAB
submit proposals if the projected rate of growth for Medicare is less than that for national
health expenditures. This exception can occur only if the IPAB was required to submit a
proposal in the prior year, and it may not be used in 2 consecutive years. In addition,
when there is a determination that the projected increase in the medical CPI is less than
the CPI-U for the implementation year, the IPAB is not required to submit a proposal.
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182
equal to the average in the Consumer Price Index for All Urban
Consumers (all items; United States city average) and the medical care
expenditure category of the Consumer Price Index for All Urban
Consumers (United States city average). For determination years 2018
and after, the target growth rate is equal to the nominal Gross
Domestic Product (GDP) per capita plus 1 percentage point.
Table V.B2 presents the projected rates of growth that are used in the
IPAB determination. The first determination that the Medicare per
capita growth rate exceeds the per capita target growth rate is
projected to be made in 2017.
Table V.B2.—Key Rates of Growth for IPAB Determination [In percent]
1These amounts differ from those presented in section V.D because they are determined based on the methodology required for the IPAB determination. They are calculated as the sum of the average per capita spending under each of Parts A, B, and D. For Parts B and D, the spending is net of premiums. In addition, the amounts in section V.D include other miscellaneous items such as Medicare Advantage additional premiums. 2Source: For years 2011-2014, the national health expenditure (NHE) data were published in December 2015 (Health Affairs, vol. 35, no.1) and are available at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html. For years 2015-2024, the NHE data were published in July 2015 (Health Affairs, vol. 34, no.8) and are available at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html. For 2025, NHE growth rates were determined based on the methods described in section IV.D. 35-year average starting 2 years prior to the determination year and ending 2 years after the determination year. An implementation year is 2 years after a determination year in which Medicare per capita costs are projected to grow at a faster rate than the target, requiring a reduction in spending. 4The determination values for 2013-2015 reflect the actual determinations made in those years. 5For determinations made in 2013-2017, the target is equal to the average of the growth in the Consumer Price Index for All Urban Consumers (all items; United States city average) and the medical care expenditure category of the Consumer Price Index for All Urban Consumers (United States city average). For 2018 and later determinations, the target rate of growth is per capita GDP plus 1 percent.
1Based on national health expenditure (NHE) projections article published in July 2015 (Health Affairs, vol. 34, no. 8). Data through 2013 are considered historical, and years after 2024 are extrapolated based on the Trustees’ assumptions. The findings presented in this article, along with the paper outlining its methodology, are available at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html.
As shown in table V.B6, the gap between outlays and dedicated
revenues was substantial in 2010. The growth in both then slows
initially as Medicare spending decelerates and as provisions of the ACA
begin taking effect. This gap will increase faster than outlays in most
years through 2041 since the dedicated sources of income to the HI
trust fund will generally cover a decreasing percentage of HI outlays.
1Percent changes for 1970 represent the average annual increases from 1967 (the first full year of trust fund operations) through 1970. Similarly, percent changes shown for 1975, 1980, 1985, 1990, 1995, 2000, and 2005 represent the average annual increase over the 5-year period ending in the indicated year.
Per Beneficiary Cost
201
On average, annual increases in per beneficiary costs have been
greater for SMI Part B than for HI during the previous four decades—
by approximately 1.0 percent, 4.5 percent, 1.0 percent, and 2.6 percent
per year in the 1970s, 1980s, 1990s, and 2000s, respectively. The HI
increase remains lower than the SMI Part B increase over the next
10 years due to lower utilization, the productivity adjustments, and
other payment rate adjustments affecting all of the HI providers but
only some of the SMI Part B providers.
Note that the rapid growth rates in the 1970s and 1980s are not
expected to recur for either HI or SMI Part B due to more moderate
inflation rates and the conversion of Medicare’s remaining cost-based
reimbursement mechanisms to prospective payment systems as part of
the Balanced Budget Act of 1997. In addition, the reduction in
Medicare price updates for most categories of providers that affected
the growth rates over the last several years will continue to reduce
growth rates throughout the projection period. For 2015, the HI growth
rate is estimated to be negative as a result of the low payment update
and further reductions to disproportionate share payments that are
required by the ACA.
The average annual increases in Part D per beneficiary costs are
expected to be somewhat greater than for HI or SMI Part B for the
period 2016 through 2025. This difference occurs largely because the
savings provisions of recently enacted legislation affect Parts A and B
only and because the prices for high-cost specialty drugs continue to
increase.
Appendices
202
E. MEDICARE COST-SHARING AND PREMIUM AMOUNTS
HI beneficiaries who use covered services may be subject to deductible
and coinsurance requirements. A beneficiary is responsible for an
inpatient hospital deductible amount, which is deducted from the
amount payable by the HI trust fund to the hospital, for inpatient
hospital services furnished in a spell of illness. When a beneficiary
receives such services for more than 60 days during a spell of illness,
he or she is responsible for a coinsurance amount equal to one-fourth
of the inpatient hospital deductible for each of days 61-90 in the
hospital. After 90 days in a spell of illness, each individual has
60 lifetime reserve days of coverage, for which the coinsurance amount
is equal to one-half of the inpatient hospital deductible. A beneficiary
is responsible for a coinsurance amount equal to one-eighth of the
inpatient hospital deductible for each of days 21-100 of skilled nursing
facility services furnished during a spell of illness. No cost-sharing is
required for home health or hospice services.
Most persons aged 65 and older and many disabled individuals under
age 65 are insured for HI benefits without payment of any premium.
The Social Security Act provides that certain aged and disabled
persons who are not insured may voluntarily enroll, subject to the
payment of a monthly premium. In addition, since 1994, voluntary
enrollees may qualify for a reduced premium if they have at least
30 quarters of covered employment.
Table V.E1 shows the historical levels of the HI deductible,
coinsurance amounts, and premiums, as well as projected values for
future years based on the intermediate set of assumptions used in
estimating the operations of the trust funds. Certain anomalies in
these values resulted from specific trust fund features in particular
years (for example, the effect of the Medicare Catastrophic Coverage
Act of 1988 on 1989 values). The values listed in the table for future
years are estimates, and the actual amounts are likely to be somewhat
1Amounts shown are effective for calendar years. 2Amounts shown for 1967-1982 are for the 12-month periods ending June 30; amounts shown for 1983 are for the period July 1, 1982 through December 31, 1983; amounts shown for 1984 and later are for calendar years. 3Anomalies in the 1989 values are due to the Medicare Catastrophic Coverage Act of 1988. Most of the provisions of the Act were repealed the following year.
The Federal Register notice announcing the HI deductible and
coinsurance amounts for 2016 included an estimate of the aggregate
cost to HI beneficiaries for the changes in the deductible and
coinsurance amounts from 2015 to 2016. At the time of the notice’s
publication, it was estimated that in 2016 there would be 7.75 million
inpatient deductibles paid at $1,288 each, 1.83 million inpatient days
subject to coinsurance at $322 per day (for hospital days 61 through
90), 0.89 million lifetime reserve days subject to coinsurance at
$644 per day, and 42.67 million extended care days subject to
coinsurance at $161.00 per day. Similarly, it was estimated that in
2015 there would be 7.73 million deductibles paid at $1,260 each,
1.83 million days subject to coinsurance at $315 per day (for hospital
days 61 through 90), 0.89 million lifetime reserve days subject to
coinsurance at $630 per day, and 41.47 million extended care days
subject to coinsurance at $157.50 per day. The total increase in cost to
beneficiaries was estimated to be $610 million due to (i) the increase in
the inpatient deductible and coinsurance amounts and (ii) the increase
in the number of deductibles and daily coinsurance amounts paid.
Table V.E2 displays the SMI cost-sharing and premium amounts for
Parts B and D. The projected values for future years are based on the
intermediate set of assumptions used in estimating the operations of
the Part B and Part D accounts. As a result, these values are
estimates, and the actual amounts are likely to be somewhat different
as experience emerges. The premiums for 2010, 2011, and 2017 also
reflect significant additional increases designed to offset the loss of
revenues attributable to the hold-harmless provision, as described
1Amounts shown for 1967-1982 are for the 12-month periods ending June 30; amounts shown for 1983 are for the period July 1, 1982 through December 31, 1983; amounts shown for 1984 and later are for calendar years. 2Prior to the Medicare Modernization Act, the Part B deductible was fixed by statute and had only occasionally been adjusted. The Medicare Modernization Act raised the deductible to $110 in 2005 and specified that it be indexed by average per beneficiary Part B expenditures thereafter. 3In accordance with limitations on the costs of health care imposed under Phase III of the Economic Stabilization program, the standard premium rates for July and August 1973 were set at $5.80 and $6.10, respectively. Effective September 1973, the rate increased to $6.30. 4Anomalies in the 1989 values are due to the Medicare Catastrophic Coverage Act of 1988. Most of the provisions of the Act were repealed the following year. 5If the Social Security COLA were 0 percent (so that the BBA provisions would apply) or large enough to allow all Part B enrollees to pay the full 2017 premium, then the estimated 2017 premium would be roughly the same as the 2016 premium of $121.80. This amount includes the increase in premium to repay the general fund under the BBA, as the margin included in the 2016 Part B financing is projected to be adequate to absorb most of the additional repayment. 6These amounts have already been determined.
The Part B monthly premiums displayed in table V.E2 are the
standard premium rates paid by most Part B enrollees. However, there
are three provisions that alter the premium rate for certain Part B
enrollees. First, there is a premium surcharge for those beneficiaries
who enroll after their initial enrollment period. Second, beginning in
2007, there is a higher income-related premium for those individuals
whose modified adjusted gross income exceeds a specified threshold.
Table V.E3 displays these Part B income-related premium amounts for
2007 through 2025, based on the intermediate set of assumptions.
Table V.E3.—Part B Income-Related Monthly Premium Amounts1
Calendar year
Ultimate percentage of program costs represented by premium
Table V.F1.—Annual Revenues and Expenditures for Medicare and Social Security Trust Funds and the Total Federal Budget,
Fiscal Year 2015 (In billions)
Trust funds Other government
Revenue and expenditures categories HI SMI OASDI Combined Total1
Revenues from public: Payroll and benefit taxes $257.9 — $817.1 $1,075.0 — $1,075.0 Premiums2 4.8 $79.8 — 84.6 — 84.6 Other taxes, fees, and payments3 — 11.8 — 11.8 $2,078.5 2,090.3
Total 262.7 91.6 817.1 1,171.4 2,078.5 3,249.9
Total expenditures to public4 278.7 359.4 887.7 1,525.8 2,162.4 3,688.3
Net Results for Budget Perspective −16.0 −267.8 −70.6 −354.5 −83.9 −438.4
Revenues from other government accounts: Transfers 1.0 263.5 0.3 264.8 −264.8 — Interest credits 8.6 2.5 96.0 107.0 −107.0 —
Total 9.6 266.0 96.2 371.8 −371.8 —
Net Results for Trust Fund Perspective −6.4 −1.9 25.6 17.3 n/a n/a 1This column is the sum of the preceding two columns and shows data for the total Federal budget. The figure $438.4 billion was the total Federal budget deficit for fiscal year 2015. 2Includes Part D premiums paid directly to plans, which are not displayed on Treasury statements and are estimated. 3Includes Part D State transfers. 4The OASDI figure includes $4.7 billion transferred to the Railroad Retirement Board.
Notes: 1. For comparison, HI taxable payroll, OASDI taxable payroll, and GDP were $8,014 billion, $6,370 billion, and $17,956 billion, respectively, in 2015.
2. Totals do not necessarily equal the sums of rounded components. 3. n/a indicates not applicable.
The trust fund perspective reflects both categories of revenues for each
trust fund. For HI, revenues from the public plus transfers/credits from
other government accounts were $6.4 billion less than total
expenditures in FY 2015, as shown at the bottom of the first column.104
For the SMI trust fund, the statutory revenues from beneficiary
premiums, State transfers, general revenue transfers, and interest
earnings collectively were $1.9 billion less than expenditures in
FY 2015. Note that it is appropriate to view the general revenue
transfers from other government accounts as financial resources from
the trust fund perspective since they are available to help meet trust
fund outlays. For OASDI, total trust fund revenues from all sources
(including $96.0 billion in interest payments and $0.3 billion in general
fund reimbursements) exceeded total expenditures by $25.6 billion.
From the government-wide or budget perspective, only earmarked
revenues received from the public—principally taxes on payroll and
104The Department of the Treasury invests surplus revenues from the public over
expenditures to the public in special Treasury securities, which thereby represent a loan
from the trust funds to the general fund of the Federal Government. These loans reduce
the amount that the general fund has to borrow from the public to finance a deficit (or
likewise increase the amount of debt paid off if there is a surplus). Interest is credited to
the trust funds while the securities are being held. Trust fund securities can be redeemed
at any time if needed to help meet program expenditures.
Trust Funds and Federal Budget
213
benefits, plus premiums—and expenditures made to the public are
important for the final balance.105 For HI, the difference between such
revenues ($262.7 billion) and total expenditures made to the public
($278.7 billion) was $16.0 billion in FY 2015, indicating that HI had a
negative effect on the overall budget in FY 2015. For SMI, beneficiary
premiums, fees on brand-name prescription drugs to Part B, and State
payments to Part D of Medicare were the only sources of revenues from
the public in FY 2015 and represented only about 25 percent of total
expenditures. The remaining $267.8 billion in FY 2015 outlays
represented a substantial net draw on the Federal budget in that
year.106 For OASDI, the difference between revenues from the public
($817.1 billion) and total expenditures ($887.7 billion) was
$70.6 billion, indicating that OASDI also had a negative effect on the
overall budget last year if the effects of past trust fund cash flows on
interest payments from the Federal Government to the public are not
taken into account.
Thus, from the trust fund perspective, OASDI had an annual surplus
in FY 2015, and HI and SMI had deficits. From the budget perspective,
HI, SMI, and OASDI each required a net draw on the budget. HI, SMI,
and OASDI collectively had a trust fund surplus of $17.3 billion in
FY 2015 but a net draw of $354.5 billion on the budget.
It is important to recognize that each viewpoint is appropriate for its
intended purpose but that one perspective cannot be used to answer
questions related to the other. In the case of SMI, the trust fund will
always be in balance and there will always be a net draw on the Federal
budget. In the case of HI, trust fund surpluses in a given year may
occur with either a positive or negative direct impact on the budget for
that year. Conversely, a positive or negative budget impact from HI
offers minimal insight into whether its trust fund has sufficient total
revenues and assets to permit payment of benefits.
The next section illustrates the magnitude of the long-range difference
between projected expenditures and revenues for Medicare and Social
Security from both the trust fund and budget perspectives.
105For this purpose, the public includes State governments since they are outside of the
Federal Government. 106Three types of trust fund transactions constituted this net budget obligation:
$263.5 billion was drawn in the form of general revenue transfers, and another
$2.5 billion in interest payments, while $1.9 billion was transferred to the trust fund
from the general fund through the redemption of special-issue Treasury securities in an
amount equal to the trust fund deficit for the year.
Appendices
214
Future Obligations of the Trust Funds and the Budget
Table V.F2 collects from the Medicare and OASDI Trustees Reports
the present values of projected future revenues and expenditures over
the next 75 years. For HI and OASDI, tax revenues from the public are
projected to fall short of statutory expenditures by $3.8 trillion and
$14.2 trillion, respectively, in present value terms.107
Table V.F2.—Present Values of Projected Revenue and Cost Components of 75-Year Open-Group Obligations for HI, SMI, and OASDI
(In trillions, as of January 1, 2016)
Revenue and expenditure categories HI SMI OASDI Combined
Revenues from public: Payroll and benefit taxes $20.4 — $60.2 $80.6 Premiums 0.3 $9.8 — 10.1 Other taxes and fees1 — 1.3 — 1.3
Total 20.7 11.1 60.2 92.0
Total expenditures to public 24.5 39.7 74.4 138.6
Net Results for Budget Perspective −3.8 −28.6 −14.2 −46.6
Revenues from other government accounts: Transfers 0.0 28.6 0.0 28.6 Interest credits n/a n/a n/a n/a
Total 0.0 28.6 0.0 28.6
Trust fund assets on January 1, 2016 0.2 0.1 2.8 3.1
Net Results for Trust Fund Perspective −3.6 0.0 −11.4 −15.0 1Includes Part B revenues from fees on manufacturers and importers of brand-name prescription drugs and Part D State transfers.
Notes: 1. For comparison, the present values of HI taxable payroll, OASDI taxable payroll, and GDP are $534.8 trillion, $455.4 trillion, and $1,188.9 trillion, respectively, over the next 75 years. This present value of GDP is calculated using HI-specific interest discount factors and differs slightly from the corresponding amount shown in the OASDI Trustees Report.
2. Medicare present values are calculated using HI-specific discount factors, while OASDI amounts use OASDI-specific discount factors.
3. Totals do not necessarily equal the sums of rounded components. 4. n/a indicates not applicable. 5. 0.0 indicates an amount of less than $50 billion.
From the budget perspective, these are the additional amounts that
would be necessary in order to pay HI and OASDI benefits and other
costs at the level scheduled over the next 75 years. From the trust fund
perspective, the amounts needed are smaller by the value of the
accumulated assets in the respective trust funds—$0.2 trillion for HI
and $2.8 trillion for OASDI—that could be drawn down to cover a part
of the projected shortfall in tax revenues. Three points about this
comparison in table V.F2 for OASDI and HI are important to note:
• The trust fund and budget perspectives differ in the treatment of
the starting trust fund assets. Those accumulated reserves are
107Interest income is not a factor in this table, as dollar amounts are in present value
terms.
Trust Funds and Federal Budget
215
credited to the trust fund programs under the trust fund
perspective, but are not under the budget perspective.
• The table quantifies fiscal imbalances under a policy of paying full
scheduled benefits, which after trust fund depletion is contrary to
current law. Under both the budget and trust fund perspectives,
projected HI and OASDI cash flow deficits after trust fund
depletion are included in the table V.F2 75-year financial
imbalance measure. By law, however, once assets are depleted,
expenditures cannot be made except to the extent covered by
ongoing tax receipts and other trust fund income.
• In practice, the long-range HI and OASDI deficits would likely be
addressed by future legislation to reduce expenditures, increase
payroll or other earmarked tax revenues, or some combination of
such measures. For Medicare, in particular, lawmakers have
frequently enacted legislation to slow the growth of expenditures.
The situation for SMI is somewhat different. SMI expenditures for
Part B and Part D are projected to exceed premium and other
dedicated revenues by $28.6 trillion. To keep the SMI trust fund
solvent for the next 75 years will require general fund transfers of this
amount, and these transfers represent a formal budget requirement.
From the trust fund perspective, the present value of projected total
premiums and general revenues is about equal to the present value of
future expenditures.
From the 75-year budget perspective, the present value of the
additional resources that would be necessary to meet projected
expenditures, for the three programs combined, is $46.6 trillion.108 To
put this very large figure in perspective, it would represent 3.9 percent
of the present value of projected GDP over the same period
($1,189 trillion). The components of the $46.6-trillion total are as
follows:
108As noted previously, the long-range HI and OASDI financial imbalances could instead
be partially addressed by expenditure reductions, thereby reducing the need for
additional revenues. Similarly, SMI expenditure reductions would reduce the need for
general fund transfers.
Appendices
216
Unfunded Medicare and OASDI obligations
(trust fund perspective)109 ................................ $15.0 trillion (1.3% of GDP)
HI, SMI, and OASDI asset redemptions ........... 3.1 trillion (0.3% of GDP)
SMI general revenue financing ......................... 28.6 trillion (2.4% of GDP)
These resource needs would be in addition to the payroll taxes, benefit
taxes, and premium payments. As noted, the asset redemptions and
SMI general revenue transfers represent formal budget commitments,
but no provision exists for covering the HI and OASDI trust fund
deficits once assets are depleted.
As discussed throughout this report, the Medicare projections shown
here could be substantially understated as a result of other potentially
unsustainable elements of current law. Although this issue does not
affect the nature of the budget and trust fund perspectives described
in this appendix, it is important to note that actual long-range present
values for HI expenditures and SMI expenditures and revenues could
exceed the amounts shown in table V.F2 by a substantial margin.
109Additional revenues and/or expenditure reductions totaling $15.0 trillion, together
with $3.1 trillion in asset redemptions, would cover the projected financial imbalance
but would leave the HI and OASDI trust funds depleted at the end of the 75-year period.
The long-range actuarial deficits for HI and OASDI include a cost factor to allow for a
normal level of fund assets. See section III.B3 in this report, and section IV.B4 in the
OASDI Trustees Report, for the numerical relationship between the actuarial deficit and
the unfunded obligations of each program.
Infinite horizon projections
217
G. INFINITE HORIZON PROJECTIONS
Consistent with the practice of previous reports, this report focuses on
the 75-year period from 2016 to 2090 for the evaluation of the long-
range financial status of the Medicare program. The estimates are for
the open-group population—all persons, some of whom are not yet
born, who will participate during the period as either taxpayers or
beneficiaries, or both—and consist of payments from, and on behalf of,
employees now in the workforce, as well as those who will enter the
workforce over the next 75 years.
Experts have noted that limiting the projections to 75 years
understates the magnitude of the long-range unfunded obligations
because summary measures (such as the actuarial balance and open-
group unfunded obligations) reflect the full amount of taxes paid by the
next two or three generations of workers, but not the full amount of
their benefits. One approach to addressing the limitations of 75-year
summary measures is to extend the projection horizon indefinitely, so
that the overall results reflect the projected costs and revenues after
the first 75 years.110 Such extended projections can also help indicate
whether the financial imbalance would be improving or continuing to
worsen beyond the normal 75-year period.
Table V.G1 presents estimates of HI unfunded obligations that extend
to the infinite horizon. The extension assumes that the HI program and
the demographic and economic trends used for the 75-year projection
continue indefinitely except that average HI expenditures per
beneficiary increase at the same rate as GDP per capita less the
productivity adjustments after 2090. If the slower HI price updates
under the ACA were able to continue indefinitely, then the HI financial
imbalance would actually improve beyond the 75-year period.
Specifically, under these assumptions, extending the calculations
beyond 2090 subtracts $6.4 trillion in unfunded obligations from the
amount estimated through 2090. Over the infinite horizon, the HI
program thus has a projected surplus of $2.81 trillion.
110The calculation of present values, in effect, applies successively less weight to future
amounts over time, through the process of interest discounting. For example, the weights
associated with the 25th, 75th, and 200th years of the projection would be about
32 percent, 2 percent, and 0.0038 percent, respectively, of the weight for the first year.
In this way, it is possible to calculate a finite summary measure for an infinite projection
period.
Appendices
218
Table V.G1.—Unfunded HI Obligations from Program Inception through the Infinite Horizon
[Present values as of January 1, 2016; dollar amounts in trillions]
As a percentage of:
Present value
HI taxable payroll GDP
Unfunded obligations through the infinite horizon1 −$2.81 −0.3 % −0.1 %
Unfunded obligations from program inception through 20901 3.63 0.7 0.3 1Present value of future expenditures less income, reduced by the amount of trust fund assets at the beginning of the period.
Notes: 1. The present values of future HI taxable payroll for 2016-2090 and for 2016 through the infinite horizon are $534.8 trillion and $972.5 trillion, respectively.
2. The present values of GDP for 2016-2090 and for 2016 through the infinite horizon are $1,188.9 trillion and $2,294.4 trillion, respectively. (These present values differ slightly from the corresponding amounts shown in the OASDI Trustees Report due to the use of HI-specific interest discount factors.)
It is possible to separate the projected HI unfunded obligation over the
infinite horizon into the portions associated with current participants
versus future participants. The first line of table V.G2 shows the
present value of future expenditures less future taxes for current
participants, including both beneficiaries and covered workers.
Subtracting the current value of the HI trust fund (the accumulated
value of past HI taxes less outlays) results in a closed-group unfunded
obligation of $10.1 trillion. In contrast, the projected difference
between taxes and expenditures for future participants is a surplus of
$13.0 trillion.
The year-by-year HI deficits described in section III.B have shown that
HI taxes will not be adequate to finance the program on a pay-as-you-
go basis (whereby payroll taxes from today’s workers provide benefits
to today’s beneficiaries).111 The unfunded obligations shown in
table V.G2 for current participants further indicate that their HI taxes
are not adequate to cover their own future costs when they become
eligible for HI benefits—and that this situation has also occurred for
workers in the past. For future workers, however, the compounding
effects of the lower HI price updates would, if they were able to
continue indefinitely, lower costs to the point that scheduled HI taxes
would be more than sufficient. In practice, lawmakers could address
the projected aggregate HI deficits by raising additional revenue or
reducing benefits (or some combination of these actions). The impact of
such changes on the unfunded obligation amounts for current versus
future participants would depend on the specific policies selected.
111As noted previously, the HI trust fund also receives small amounts of income in the
form of income taxes on OASDI benefits, interest, and general revenue reimbursements
for certain uninsured beneficiaries.
Infinite horizon projections
219
Table V.G2.—Unfunded HI Obligations for Current and Future Program Participants through the Infinite Horizon
[Present values as of January 1, 2016; dollar amounts in trillions]
As a percentage of:
Present value
HI taxable payroll GDP
Future expenditures less income for current participants ............................... $10.3 1.1 % 0.5 %
Less current trust fund (income minus expenditures to date for past and current participants)...... 0.2 0.0 0.0
Equals unfunded obligations for past and current participants1 ..................... 10.1 1.0 0.4
Plus expenditures less income for future participants for the infinite horizon −13.0 −1.3 −0.6
Equals unfunded obligations for all participants for the infinite future ............ −2.8 −0.3 −0.1 1This concept is also referred to as the closed-group unfunded obligation.
Notes: 1. The estimated present value of future HI taxable payroll for 2016 through the infinite horizon is $972.5 trillion.
2. The estimated present value of GDP for 2016 through the infinite horizon is $2,294.4 trillion. See note 2 in table V.G1.
3. Totals do not necessarily equal the sums of rounded components.
Tables V.G3 and V.G4 show the infinite horizon estimates for Part B.
The extension assumes that the demographic and economic trends
used for the 75-year projection continue indefinitely and that the
productivity adjustments to payment updates for some providers
remain unchanged. To simplify and stabilize the modeling for the
infinite horizon, the Trustees project that average Part B expenditures
per beneficiary will increase at about the same rate as GDP per capita
minus 0.3 percentage point in every year, reflecting the mix of costs by
provider category after 2090 and the payment rate updates applicable
to each category.
Table V.G3 shows an estimated present value of Part B expenditures
through the infinite horizon of $50.8 trillion, of which $27.5 trillion
would occur during the first 75 years. Because such amounts,
calculated over extremely long horizons, can be difficult to interpret,
they are also shown as percentages of the present value of future GDP.
So expressed, the corresponding figures are 2.2 percent and
2.3 percent, respectively. The table also indicates that beneficiary
premiums will finance approximately 27 percent of expenditures for
each time period and that fees related to brand-name prescription
drugs will finance about 0.2 percent. General revenues pay for the
remaining 73 percent.
Appendices
220
Table V.G3.—Unfunded Part B Obligations from Program Inception through the Infinite Horizon
[Present values as of January 1, 2016; dollar amounts in trillions]
Present value
As a percentage
of GDP
Unfunded obligations through the infinite horizon1 $0.0 0.0 % Expenditures 50.8 2.2 Income 50.8 2.2
Beneficiary premiums 13.9 0.6 General revenue contributions 36.9 1.6 Fees related to brand-name prescription drugs 0.1 0.0
Unfunded obligations from program inception through 20901 0.0 0.0 Expenditures 27.5 2.3 Income 27.5 2.3
Beneficiary premiums 7.5 0.6 General revenue contributions 20.0 1.7 Fees related to brand-name prescription drugs 0.1 0.0
1Present value of future expenditures less income, reduced by the amount of trust fund assets at the beginning of the period.
Notes: 1. The present values of GDP for 2016-2090 and for 2016 through the infinite horizon are $1,188.9 trillion and $2,294.4 trillion, respectively. See note 2 of table V.G1.
2. Totals do not necessarily equal the sums of rounded components.
Table V.G4 shows corresponding present values separately for current
versus future beneficiaries. As indicated, about 46 percent of the
projected total, infinite-horizon cost is attributable to current
beneficiaries, with the remaining 54 percent attributable to
beneficiaries becoming eligible for Part B benefits after
January 1, 2016.
Infinite horizon projections
221
Table V.G4.—Unfunded Part B Obligations for Current and Future Program Participants through the Infinite Horizon
[Present values as of January 1, 2016; dollar amounts in trillions]
Present value
As a percentage
of GDP
Future expenditures less income for current participants ................................. $0.2 0.0 % Expenditures ................................................................................................. 23.2 1.0 Income ........................................................................................................... 23.0 1.0
Beneficiary premiums ................................................................................ 6.3 0.3 General revenue contributions .................................................................. 16.7 0.7 Fees related to brand-name prescription drugs ........................................ 0.0 0.0
Less current trust fund (Income minus expenditures to date for past and current participants) ....... 0.1 0.0
Equals unfunded obligations for past and current participants1 ....................... 0.1 0.0
Expenditures ................................................................................................. 23.1 1.0 Income ........................................................................................................... 23.0 1.0
Beneficiary premiums ................................................................................ 6.2 0.3 General revenue contributions .................................................................. 16.7 0.7 Fees related to brand-name prescription drugs ........................................ 0.0 0.0
Plus expenditures less income for future participants for the infinite horizon .. −0.2 0.0 Expenditures ................................................................................................. 27.6 1.2 Income ........................................................................................................... 27.7 1.2
Beneficiary premiums ................................................................................ 7.6 0.3 General revenue contributions .................................................................. 20.1 0.9 Fees related to brand-name prescription drugs ........................................ 0.0 0.0
Equals unfunded obligations for all participants for the infinite future .............. −0.1 0.0 Expenditures ................................................................................................. 50.7 2.2 Income ........................................................................................................... 50.7 2.2
Beneficiary premiums ................................................................................ 13.8 0.6 General revenue contributions .................................................................. 36.8 1.6 Fees related to brand-name prescription drugs ........................................ 0.0 0.0
1This concept is also referred to as the closed-group unfunded obligation.
Notes: 1. The estimated present value of GDP for 2016 through the infinite horizon is $2,294.4 trillion. See note 2 of table V.G1.
2 Totals do not necessarily equal the sums of rounded components.
Tables V.G5 and V.G6 present revenue and expenditure estimates for
Part D that extend to the infinite horizon. The extension assumes that
the demographic and economic trends used for the 75-year projection
continue indefinitely except that average Part D expenditures per
beneficiary would increase at the same rate as GDP per capita after
2090.
Table V.G5 shows an estimated present value of Part D expenditures
through the infinite horizon of $30.4 trillion, of which $12.2 trillion
would occur during the first 75 years. To put the estimates in
perspective, they are also shown as percentages of the present value of
future GDP. Expressed in this way, the corresponding figures are
1.3 percent and 1.0 percent of GDP, respectively. The table also
indicates that, for each time period, beneficiary premiums would
finance approximately 19 percent of expenditures and State transfers
would finance 10 percent, with general revenues paying for the
remaining 71 percent.
Appendices
222
Table V.G5.—Unfunded Part D Obligations from Program Inception through the Infinite Horizon
[Present values as of January 1, 2016; dollar amounts in trillions]
Present value
As a percentage
of GDP
Unfunded obligations through the infinite horizon1 $0.0 0.0 % Expenditures 30.4 1.3 Income 30.4 1.3
Beneficiary premiums 5.9 0.3 State transfers 3.0 0.1 General revenue contributions 21.5 0.9
Unfunded obligations from program inception through 20901 0.0 0.0 Expenditures 12.2 1.0 Income 12.2 1.0
Beneficiary premiums 2.3 0.2 State transfers 1.2 0.1 General revenue contributions 8.7 0.7
1Present value of future expenditures less income, reduced by the amount of trust fund assets at the beginning of the period.
Notes: 1. The present values of GDP for 2016-2090 and for 2016 through the infinite horizon are $1,188.9 trillion and $2,294.4 trillion, respectively. See note 2 of table V.G1.
2 Totals do not necessarily equal the sums of rounded components.
Table V.G6 shows corresponding projections separately for current
versus future beneficiaries. As indicated, about 28 percent of the
projected total, infinite-horizon cost is attributable to current
beneficiaries, with the remaining 72 percent attributable to
beneficiaries becoming eligible for Part D benefits after
January 1, 2016.
Infinite horizon projections
223
Table V.G6.—Unfunded Part D Obligations for Current and Future Program Participants through the Infinite Horizon
[Present values as of January 1, 2016; dollar amounts in trillions]
Present value
As a percentage
of GDP
Future expenditures less income for current participants ................................. $0.0 0.0 % Expenditures ................................................................................................. 8.6 0.4 Income ........................................................................................................... 8.6 0.4
Beneficiary premiums ................................................................................ 1.7 0.1 State transfers ........................................................................................... 0.9 0.0 General revenue contributions .................................................................. 6.1 0.3
Less current trust fund (Income minus expenditures to date for past and current participants) ....... 0.0 0.0
Equals unfunded obligations for past and current participants1 ....................... 0.0 0.0
Expenditures ................................................................................................. 8.6 0.4 Income ........................................................................................................... 8.6 0.4
Beneficiary premiums ................................................................................ 1.7 0.1 State transfers ........................................................................................... 0.9 0.0 General revenue contributions .................................................................. 6.1 0.3
Plus expenditures less income for future participants for the infinite horizon .. 0.0 0.0 Expenditures ................................................................................................. 21.7 0.9 Income ........................................................................................................... 21.7 0.9
Beneficiary premiums ................................................................................ 4.2 0.2 State transfers ........................................................................................... 2.2 0.1 General revenue contributions .................................................................. 15.4 0.7
Equals unfunded obligations for all participants for the infinite future .............. 0.0 0.0 Expenditures ................................................................................................. 30.4 1.3 Income ........................................................................................................... 30.4 1.3
Beneficiary premiums ................................................................................ 5.9 0.3 State transfers ........................................................................................... 3.0 0.1 General revenue contributions .................................................................. 21.5 0.9
1This concept is also referred to as the closed-group unfunded obligation.
Notes: 1. The estimated present value of GDP for 2016 through the infinite horizon is $2,294.4 trillion. See note 2 of table V.G1.
2. Totals do not necessarily equal the sums of rounded components.
Appendices
224
H. FISCAL YEAR HISTORICAL DATA AND PROJECTIONS
THROUGH 2025
Tables V.H1, V.H2, and V.H3 present detailed operations of the HI
trust fund, along with Part B and Part D of the SMI trust fund, for
fiscal year 2015. These tables are similar to the calendar-year
operation tables displayed in sections III.B, III.C, and III.D.
Table V.H1.—Statement of Operations of the HI Trust Fund during Fiscal Year 2015 [In thousands]
Total assets of the trust fund, beginning of period .............................................................. $202,286,189 Revenue:
Payroll taxes ............................................................................................................... $237,696,903 Income from taxation of OASDI benefits .................................................................... 20,208,000 Interest on investments .............................................................................................. 8,612,675 Premiums collected from voluntary participants ........................................................ 3,276,902 Premiums collected from Medicare Advantage participants ...................................... 320,759 ACA Medicare shared savings program receipts ....................................................... 6,596 Transfer from Railroad Retirement account ............................................................... 564,800 Reimbursement, transitional uninsured coverage ...................................................... 187,000 Reimbursement, program management general fund ............................................... 650,124 Interfund interest receipts1 .......................................................................................... −18,419 Interest on reimbursements, Railroad Retirement ..................................................... 29,932 Other ........................................................................................................................... 2,527 Reimbursement, union activity ................................................................................... 1,055 Fraud and abuse control receipts:
Criminal fines.......................................................................................................... 56,549 Civil monetary penalties ......................................................................................... 45,772 Civil penalties and damages, Department of Justice............................................. 496,692 Asset forfeitures, Department of Justice ................................................................ 14,792 3% administrative expense reimbursement, Department of Justice ..................... 15,362 General fund appropriation fraud and abuse, FBI ................................................. 129,217 General fund transfer, Discretionary ...................................................................... 61,840
Total revenue ................................................................................................................... $272,359,078
Expenditures: Net benefit payments .................................................................................................. $273,247,618 Administrative expenses:
Treasury administrative expenses ......................................................................... 106,060 Salaries and expenses, SSA2 ................................................................................ 830,888 Salaries and expenses, CMS3 ............................................................................... 2,733,508 Salaries and expenses, Office of the Secretary, HHS ........................................... 39,888 Medicare Payment Advisory Commission ............................................................. 6,794 Administration on aging funding............................................................................. 3,904 CMS program management–Affordable Care Act ................................................. 33,383 Transfer to Patient-Centered Outcomes Research Trust Fund4 ........................... 54,554 ACL State Health Insurance Assistance Program5 ............................................... 25,574 Fraud and abuse control expenses:
HHS Medicare integrity program ....................................................................... 825,806 HHS Office of Inspector General ...................................................................... 346,340 Department of Justice ....................................................................................... 41,953 FBI ..................................................................................................................... 89,168 HCFAC Discretionary, CMS .............................................................................. 177,238 HCFAC Other HHS Discretionary, CMS ........................................................... 47,429 HCFAC Department of Justice Discretionary, CMS ......................................... 41,494
HCFAC Office of Inspector General Discretionary, CMS ................................. 84,492
Total administrative expenses .................................................................................... 5,488,474
Total expenditures ........................................................................................................... $278,736,092
Net addition to the trust fund ................................................................................................ −6,377,014
Total assets of the trust fund, end of period ........................................................................ $195,909,175
FY Operations and Projections
225
1Reflects interest adjustments on the reallocation of administrative expenses among the Medicare trust funds, the OASDI trust funds, and the general fund of the Treasury. Estimated payments are made from the trust funds and then are reconciled, with interest, the next year when the actual costs are known. A positive figure represents a transfer to the HI trust fund from the other trust funds. A negative figure represents a transfer from the HI trust fund to the other funds. 2For facilities, goods, and services provided by SSA. 3Includes administrative expenses of the intermediaries. 4Reflects amount transferred from the HI trust fund to the Patient-Centered Outcomes Research trust fund, as authorized by the Patient Protection and Affordable Care Act of 2010. 5Reflects amount transferred from the HI trust fund to the Administration for Community Living (ACL) for administration of the State Health Insurance Assistance Program, as authorized by the Consolidated Appropriations Act of 2014.
Note: Totals do not necessarily equal the sums of rounded components.
Table V.H2.—Statement of Operations of the Part B Account in the SMI Trust Fund during Fiscal Year 2015
[In thousands]
Total assets of the Part B account in the trust fund, beginning of period $70,234,833
Revenue: Premiums from enrollees:
Enrollees aged 65 and over ......................................................... $56,565,661 Disabled enrollees under age 65 ................................................. 10,553,313
Total premiums ................................................................................. 67,118,974 Premiums collected from Medicare Advantage participants ............ 358,472 Government contributions:
Enrollees aged 65 and over ......................................................... 155,266,635 Disabled enrollees under age 65 ................................................. 38,706,875 Health information technology (HIT) receipts .............................. 1,861,906
Total government contributions ........................................................ 195,835,416 Other ................................................................................................. 13,731 Interest on investments .................................................................... 2,201,447 Interest on investments HIT adjustment ........................................... 251,294 Interfund interest receipts1 ................................................................ 18,142 Annual fees–branded Rx manufacturers and importers .................. 2,991,040 ACA Medicare shared savings program receipts ............................. 5,959
Total revenue ......................................................................................... $268,794,476
Expenditures: Net Part B benefit payments ............................................................ $272,010,863 Administrative expenses:
Transfer to Medicaid2 ................................................................... 748,626 Treasury administrative expenses ............................................... 560 Salaries and expenses, CMS3 ..................................................... 1,128,480 Salaries and expenses, Office of the Secretary, HHS ................. 39,862 Salaries and expenses, SSA ....................................................... 1,059,904 Medicare Payment Advisory Commission ................................... 4,529 Administration on aging funding................................................... 3,904 Railroad Retirement administrative expenses ............................. 31,217 CMS program management–Affordable Care Act ....................... 62,778 Transfer to Patient-Centered Outcomes Research trust fund4 .... 61,506 ACL State Health Insurance Assistance Program5 ..................... 25,574
Total administrative expenses .......................................................... 3,166,940
Total expenditures ................................................................................. $275,177,804
Net addition to the trust fund ................................................................. −6,383,328
Total assets of the Part B account in the trust fund, end of period ........... $63,851,505
1Reflects interest adjustments on the reallocation of administrative expenses among the Medicare trust funds, the OASDI trust funds, and the general fund of the Treasury. Estimated payments are made from the trust funds and then are reconciled, with interest, the next year when the actual costs are known. A positive figure represents a transfer to the Part B account of the SMI trust fund from the other trust funds. A negative figure represents a transfer from the Part B account in the SMI trust fund to the other funds. 2Represents amount transferred from the Part B account in the SMI trust fund to Medicaid to pay the Part B premium for certain qualified individuals, as legislated by the Balanced Budget Act of 1997. 3Includes administrative expenses of the carriers and intermediaries.
Appendices
226
4Reflects amount transferred from the Part B account of the SMI trust fund to the Patient-Centered Outcomes Research trust fund, as authorized by the Patient Protection and Affordable Care Act of 2010. 5Reflects amount transferred from the Part B account of the SMI trust fund to the Administration for Community Living (ACL) for administration of the State Health Insurance Assistance program, as authorized by the Consolidated Appropriations Act of 2014.
Note: Totals do not necessarily equal the sums of rounded components.
Table V.H3—Statement of Operations of the Part D Account in the SMI Trust Fund during Fiscal Year 2015
[In thousands]
Total assets of the Part D account in the trust fund, beginning of period $1,087,735
Revenue: Premiums from enrollees
Premiums deducted from Social Security benefits .................... $3,814,869
Premiums paid directly to plans1 ................................................ 8,464,651
Total premiums ............................................................................... 12,279,520 Government contributions:
Prescription drug benefits .......................................................... 67,210,110 Prescription drug administrative expenses ................................ 438,664
Total government contributions ...................................................... 67,648,774 Payments from States .................................................................... 8,796,757 Interest on investments .................................................................. 9,517 Interfund interest payments2 ........................................................... 1,278
Total revenue ....................................................................................... $88,735,846
Expenditures: Part D benefit payments1 ................................................................ $83,795,604 Part D administrative expenses ...................................................... 438,664
Total expenditures ............................................................................... $84,234,268
Net addition to the trust fund ............................................................... 4,501,578
Total assets of the Part D account in the trust fund, end of period3 ........ $5,589,313
1Premiums paid directly to plans are not displayed on Treasury statements and are estimated. These premiums have been added to the benefit payments reported on the Treasury statement to obtain an estimate of total Part D benefits. Direct data on such benefit amounts are not yet available. 2Reflects interest adjustments on the reallocation of administrative expenses among the Medicare trust funds, the OASDI trust funds, and the general fund of the Treasury. Estimated payments are made from the trust funds and then are reconciled, with interest, the next year when the actual costs are known. A positive figure represents a transfer to the Part D account in the SMI trust fund from the other trust funds. A negative figure represents a transfer from the Part D account in the SMI trust fund to the other funds. 3As noted in section III.D2, a new policy was developed in 2015 under which amounts from the Treasury are transferred into the Part D account 5 business days before the benefit payments to the plans, rather than on the day the benefit payments are due—typically the first business day of a month—as had previously been the case. Accordingly, for any year in which October 1 does not occur on a weekend, the Part D account includes a balance at the end of the previous fiscal year that is more substantial than it would have been prior to implementation of the new policy.
Note: Totals do not necessarily equal the sums of rounded components.
Tables V.H4, V.H5, V.H6, V.H7, and V.H8 present estimates of the
fiscal-year operations of total Medicare, the HI trust fund, the SMI
trust fund, the Part B account in the SMI trust fund, and the Part D
account in the SMI trust fund, respectively. These tables correspond to
the calendar-year trust fund operation tables shown in section V.B and
in section III.
FY Operations and Projections
227
Table V.H4.—Total Medicare Income, Expenditures, and Trust Fund Assets during Fiscal Years 1970-2025
[In billions]
Fiscal year Total income Total expenditures Net change in
1Reflects the adjustment made by Treasury in November of 2014 to account for $2.6 billion in Part B drug fee income in September of 2013, rather than in October of 2013 when it was actually received.
Note: Totals do not necessarily equal the sums of rounded components.
Table V.H5.—Operations of the HI Trust Fund during Fiscal Years 1970-2025 [In billions]
1Fiscal years 1970 and 1975 consist of the 12 months ending on June 30 of each year; fiscal years 1980 and later consist of the 12 months ending on September 30 of each year. 2Other income includes recoveries of amounts reimbursed from the trust fund that are not obligations of the trust fund, receipts from the fraud and abuse control program, and a small amount of miscellaneous income. In 2008, includes an adjustment of −$0.9 billion for interest inadvertently earned as a result of Part A hospice costs that were misallocated to the Part B trust fund account. 3See footnote 2 of table III.B4. 4Includes costs of Peer Review Organizations from 1983 through 2001 (beginning with the implementation of the prospective payment system on
October 1, 1983) and costs of Quality Improvement Organizations beginning in 2002. 5Includes costs of experiments and demonstration projects. Beginning in 1997, includes fraud and abuse control expenses, as provided for by the Health Insurance Portability and Accountability Act of 1996 (Public Law 104-191). 6Includes repayment of loan principal, from the OASI trust fund, of $1.8 billion. 7For 1998 to 2003, includes monies transferred to the SMI trust fund for home health agency costs, as provided for by the Balanced Budget Act of 1997 (Public Law 105-33). 8Includes the $8.5 billion transferred to the general fund of the Treasury for Part A hospice costs that were previously misallocated to the Part B trust fund account. 9Includes the lump-sum general revenue adjustment of $1.0 billion, as provided for by section 151 of the Social Security Amendments of 1983 (Public Law 98-21).
Note: Totals do not necessarily equal the sums of rounded components.
229
FY
Op
eratio
ns a
nd
Pro
jection
s
Appendices
230
Table V.H6.—Operations of the SMI Trust Fund (Cash Basis) during Fiscal Years 1970-2025
Intermediate estimates: 2016 85.5 309.9 9.4 5.3 410.0 400.5 3.6 404.1 5.9 75.3 2017 97.0 295.0 10.3 6.4 408.7 411.1 4.0 415.2 −6.5 68.8 2018 108.4 323.7 11.3 5.9 449.3 424.3 4.3 428.6 20.6 89.5 2019 119.6 354.8 12.4 4.7 491.5 479.9 4.6 484.5 7.0 96.5 2020 131.1 384.3 13.8 5.1 534.3 521.1 4.9 526.0 8.3 104.8 2021 141.6 415.5 15.3 6.2 578.6 564.8 5.2 570.0 8.5 113.3 2022 152.6 448.1 16.7 7.9 625.3 636.3 5.5 641.8 −16.5 96.8 2023 165.6 485.6 18.1 8.7 678.1 664.6 5.9 670.5 7.7 104.4 2024 179.4 524.5 19.6 9.4 732.8 688.6 6.2 694.8 38.0 142.4 2025 193.5 562.4 21.2 10.1 787.1 763.2 6.6 769.8 17.4 159.8 1Fiscal years 1970 and 1975 consist of the 12 months ending on June 30 of each year; fiscal years 1980 and later consist of the 12 months ending on September 30 of each year. 2Includes Part B general fund matching payments, Part D subsidy costs, and certain interest-adjustment items. 3Other income includes recoveries of amounts reimbursed from the trust fund that are not obligations of the trust fund and other miscellaneous income. In 2008, includes an adjustment of $0.8 billion for interest inadvertently earned as a result of Part A hospice costs that were misallocated to the Part B trust fund account. 4See footnote 2 of table III.B4. 5See footnote 3 of table III.B4. 6The financial status of SMI depends on both the assets and the liabilities of the trust fund (see table III.C8). 7Includes the impact of the Medicare Catastrophic Coverage Act of 1988 (Public Law 100-360). 8Benefit payments less monies transferred from the HI trust fund for home health agency costs, as provided for by the Balanced Budget Act of 1997. 9Benefits shown for 2008 are lower by the $8.5 billion transferred from the general fund of the Treasury to reimburse Part B for Part A hospice costs that were previously misallocated to the Part B trust fund account. 10See footnote 1 of table V.H4.
Note: Totals do not necessarily equal the sums of rounded components.
FY Operations and Projections
231
Table V.H7.—Operations of the Part B Account in the SMI Trust Fund (Cash Basis) during Fiscal Years 1970-2025
1Fiscal years 1970 and 1975 consist of the 12 months ending on June 30 of each year; fiscal years 1980 and later consist of the 12 months ending on September 30 of each year. 2General fund matching payments, plus certain interest-adjustment items. 3Other income includes recoveries of amounts reimbursed from the trust fund that are not obligations of the trust fund and other miscellaneous income. In 2008, includes an adjustment of $0.8 billion for interest earned as a result of Part A hospice costs that were misallocated to the Part B trust fund account. 4See footnote 2 of table III.B4. 5See footnote 3 of table III.B4. 6The financial status of Part B depends on both the assets and the liabilities of the trust fund (see table III.C8). 7Includes the impact of the Medicare Catastrophic Coverage Act of 1988 (Public Law 100-360). 8Benefit payments less monies transferred from the HI trust fund for home health agency costs, as provided for by the Balanced Budget Act of 1997. 9Benefits shown for 2008 are lower by the $8.5 billion transferred from the general fund of the Treasury to reimburse Part B for Part A hospice costs that were previously misallocated to the Part B trust fund account. 10See footnote 1 of table V.H4.
Note: Totals do not necessarily equal the sums of rounded components.
Appendices
232
Table V.H8.—Operations of the Part D Account in the SMI Trust Fund (Cash Basis) during Fiscal Years 2004-2025
1Includes, net of transfers from States, all government transfers required to fund benefit payments, administrative expenses, and State expenses for making low-income eligibility determinations. 2See footnote 3 of table III.D3. 3Includes payments to Part D plans, payments to retiree drug subsidy plans, payments to States for making low-income eligibility determinations, Part D drug premiums collected from beneficiaries, and transfers to Medicare Advantage plans and private drug plans. Includes amounts for the Transitional Assistance program of $0.2, $1.1, and $0.2 billion in 2004-2006, respectively. 4See footnote 3 of table V.H3.
Note: Totals do not necessarily equal the sums of rounded components.
Table V.H9 shows the total assets of the HI trust fund and their
distribution by interest rate and maturity date at the end of fiscal years
2014 and 2015. The assets at the end of fiscal year 2015 totaled
$195.9 billion: $195.5 billion in the form of U.S. Government
obligations and an undisbursed balance of $0.5 billion.
FY Operations and Projections
233
Table V.H9.—Assets of the HI Trust Fund, by Type, at the End of Fiscal Years 2014 and 20151
September 30, 2014 September 30, 2015
Investments in public-debt obligations sold only to the trust funds (special issues): Certificates of indebtedness:
Total assets .......................................................... $202,286,189,399.37 $195,909,175,209.78 1Certificates of indebtedness and bonds are carried at par value, which is the same as book value.
The effective annual rate of interest earned by the assets of the HI
trust fund during the 12 months ending on December 31, 2015 was
4.3 percent. Interest on special issues is paid semiannually on June 30
and December 31. The interest rate on public-debt obligations issued
for purchase by the trust fund in June 2015 was 2.0 percent, payable
semiannually.
Table V.H10 shows a comparison of the total assets of the SMI trust
fund, Parts B and D combined, and their distribution at the end of
fiscal years 2014 and 2015. At the end of 2015, assets totaled
$69.4 billion: $66.1 billion in the form of U.S. Government obligations
and an undisbursed balance of $3.3 billion.
Appendices
234
Table V.H10.—Assets of the SMI Trust Fund, by Type, at the End of Fiscal Years 2014 and 20151
September 30, 2014 September 30, 2015
Investments in public-debt obligations sold only to the trust funds (special issues): Certificates of indebtedness:
Total assets .......................................................... $71,322,567,299.16 $69,440,817,271.61 1Certificates of indebtedness and bonds are carried at par value, which is the same as book value.
The effective annual rate of interest earned by the assets of the SMI
trust fund for the 12 months ending on December 31, 2015 was
2.8 percent. Interest on special issues is paid semiannually on June 30
and December 31. The interest rate on special issues purchased by the
account in June 2015 was 2.0 percent, payable semiannually.
Glossary
235
I. GLOSSARY
Accountable care organizations (ACOs). Groups of clinicians,
hospitals, and other health care providers that choose to come together
to deliver coordinated, high-quality care to the Medicare patients they
serve.
Actuarial balance. The difference between the summarized income
rate and the summarized cost rate over a given valuation period.
Actuarial deficit. A negative actuarial balance.
Actuarial rates. One-half of the Part B expected monthly benefit and
administrative costs for each aged enrollee adjusted for interest earned
on the Part B account assets attributable to aged enrollees and a
contingency margin (for the aged actuarial rate), and one-half of the
expected monthly benefit and administrative costs for each disabled
enrollee adjusted for interest earned on the Part B account assets
attributable to disabled enrollees and a contingency margin (for the
disabled actuarial rate), for the duration the rate is in effect.
Actuarial status. A measure of the adequacy of the financing as
determined by the difference between assets and liabilities at the end
of the periods for which financing was established.
Administrative expenses. Expenses incurred by the Department of
Health and Human Services and the Department of the Treasury in
administering HI and SMI and the provisions of the Internal Revenue
Code relating to the collection of contributions. Such administrative
expenses, which are paid from the HI and SMI trust funds, include
expenditures for contractors to determine costs of, and make payments
to, providers, as well as salaries and expenses of the Centers for
Medicare & Medicaid Services (CMS).
Aged enrollee. An individual, aged 65 or over, who is enrolled in HI
or SMI.
Allowed charge. Individual charge determined by a carrier for a
covered Part B medical service or supply.
Alternative payment model (APM). A program or model (except for
a health care innovation award model) implemented by the Center for
Medicare and Medicaid Innovation at CMS; an ACO model
participating in the Medicare shared savings program; or a Medicare
demonstration required by law.
Appendices
236
Annual out-of-pocket threshold. The amount of out-of-pocket
expenses that must be paid for prescription drugs before significantly
reduced Part D beneficiary cost-sharing is effective. Amounts paid by
a third-party insurer are not included in testing this threshold, but
amounts paid by State or Federal assistance programs are included.
Assets. Treasury notes and bonds guaranteed by the Federal
Government, and cash held by the trust funds for investment purposes.
Assumptions. Values relating to future trends in certain key factors
that affect the balance in the trust funds. Demographic assumptions
include fertility, mortality, net immigration, marriage, divorce,
retirement patterns, disability incidence and termination rates, and
changes in the labor force. Economic assumptions include
unemployment, average earnings, inflation, interest rates, and
productivity. Three sets of economic assumptions are presented in the
Trustees Report:
(1) The low-cost alternative, with relatively rapid economic
growth, low inflation, and favorable (from the standpoint of
program financing) demographic conditions;
(2) The intermediate assumptions, which represent the
Trustees’ best estimates of likely future economic and
demographic conditions; and
(3) The high-cost alternative, with slow economic growth, more
rapid inflation, and financially disadvantageous
demographic conditions.
See also Hospital assumptions.
Average market yield. A computation that is made on all marketable
interest-bearing obligations of the United States. It is computed on the
basis of market quotations as of the end of the calendar month
immediately preceding the date of such issue.
Baby boom. The period from the end of World War II through the
mid-1960s marked by unusually high birth rates.
Base estimate. The updated estimate of the most recent historical
year.
Beneficiary. A person enrolled in HI or SMI. See also Aged enrollee
and Disabled enrollee.
Benefit payments. The amounts disbursed for covered services after
the deductible and coinsurance amounts have been deducted.
Benefit period. An alternate name for spell of illness.
Glossary
237
Board of Trustees. A Board established by the Social Security Act to
oversee the financial operations of the Federal Hospital Insurance
Trust Fund and the Federal Supplementary Medical Insurance Trust
Fund. The Board comprises six members, four of whom serve
automatically by virtue of their positions in the Federal Government:
the Secretary of the Treasury, who is the Managing Trustee; the
Secretary of Labor; the Secretary of Health and Human Services; and
the Commissioner of Social Security. Two other members are public
representatives whom the President appoints and the Senate confirms.
These positions are currently vacant. The Administrator of CMS serves
as Secretary of the Board of Trustees.
Bond. A certificate of ownership of a specified portion of a debt due by
the Federal Government to holders, bearing a fixed rate of interest.
Callable. Subject to redemption upon notice, as is a bond.
Carrier. A private or public organization under contract to CMS to
administer the Part B benefits under Medicare. Also referred to as
contractors, these organizations determine coverage and benefit
amounts payable and make payments to physicians, suppliers, and
beneficiaries.
Case mix index. A relative weight that captures the average
complexity of certain Medicare services.
Cash basis. The costs of the service when payment was made rather
than when the service was performed.
Certificate of indebtedness. A short-term certificate of ownership
(12 months or less) of a specified portion of a debt due by the Federal
Government to individual holders, bearing a fixed rate of interest.
Closed-group population. Includes all persons currently
participating in the program as either taxpayers or beneficiaries, or
both. See also Open-group population.
Coinsurance. Portion of the costs for covered services paid by the
beneficiary after meeting the annual deductible. See also Hospital
coinsurance and SNF coinsurance.
Consumer Price Index (CPI). A measure of the average change in
prices over time in a fixed group of goods and services. In this report,
references to the CPI relate to the CPI for Urban Wage Earners and
Clerical Workers (CPI-W), except for those cases in which the CPI for
All Urban Consumers—all items (CPI-U) is indicated.
Appendices
238
Contingency. Funds included in the SMI Part B trust fund account
to serve as a cushion in case actual expenditures are higher than those
projected at the time financing was established. Since the financing is
set prospectively, actual experience may be different from the
estimates used in setting the financing.
Contingency margin. An amount included in the actuarial rates to
provide for changes in the contingency level in the SMI Part B trust
fund account. Positive margins increase the contingency level, and
negative margins decrease it.
Contribution base. See Maximum tax base.
Contributions. See Payroll taxes.
Cost rate. The ratio of HI cost (or outgo or expenditures) on an
incurred basis during a given year to the taxable payroll for the year.
Covered earnings. Earnings in employment covered by HI.
Covered employment. All employment and self-employment
creditable for Social Security purposes. Almost every kind of
employment and self-employment is covered under HI. In a few
employment situations—for example, religious orders under a vow of
poverty, foreign affiliates of American employers, or State and local
governments—coverage must be elected by the employer. However,
effective July 1991, coverage is mandatory for State and local
employees who are not participating in a public employee retirement
system. All new State and local employees have been covered since
April 1986. In a few situations—for instance, ministers or self-
employed members of certain religious groups—workers can opt out of
coverage. Covered employment for HI includes all Federal employees
(whereas covered employment for OASDI includes some, but not all,
Federal employees).
Covered Part D drugs. Prescription drugs covered under the
Medicaid program plus insulin-related supplies and smoking cessation
agents. Drugs covered in Parts A and B of Medicare will continue to be
covered there, rather than in Part D.
Covered services. Services for which HI or SMI pays, as defined and
limited by statute. Covered HI services are provided by hospitals
(inpatient care), skilled nursing facilities, home health agencies, and
hospices. Covered SMI Part B services include most physician services,
care in outpatient departments of hospitals, diagnostic tests, durable
Glossary
239
medical equipment, ambulance services, and other health services that
are not covered by HI. See Covered Part D drugs for SMI Part D.
Covered worker. A person who has earnings creditable for Social
Security purposes on the basis of services for wages in covered
employment and/or on the basis of income from covered
self-employment. The number of HI covered workers is slightly larger
than the number of OASDI covered workers because of different
coverage status for Federal employment. See Covered employment.
Creditable prescription drug coverage. Prescription drug
coverage that meets or exceeds the actuarial value of Part D coverage
provided through a group health plan or otherwise.
Dedicated financing sources. The sum of HI payroll taxes, HI share
of income taxes on Social Security benefits, Part D State transfers, and
beneficiary premiums. This amount is used in the test of excess general
revenue Medicare funding.
Deductible. The annual amount payable by the beneficiary for
covered services before Medicare makes reimbursement. See also
Inpatient hospital deductible.
Deemed wage credit. See Non-contributory or deemed wage credits.
Demographic assumptions. See Assumptions.
Diagnosis-related groups (DRGs). A classification system that
groups patients according to diagnosis, type of treatment, age, and
other relevant criteria. Under the inpatient hospital prospective
payment system, hospitals are paid a set fee for treating patients in a
single DRG category, regardless of the actual cost of care for the
individual.
Direct subsidy. The amount paid to the prescription drug plans
representing the difference between the plan’s risk-adjusted bid and
the beneficiary premium for basic coverage.
Disability. For Social Security purposes, the inability to engage in
substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death
or to last for a continuous period of not less than 12 months. Special
rules apply for workers aged 55 or older whose disability is based on
blindness. The law generally requires that a person be disabled
continuously for 5 months before he or she can qualify for a
Appendices
240
disabled-worker cash benefit. An additional 24 months is necessary to
qualify for benefits under Medicare.
Disability Insurance (DI). See Old-Age, Survivors, and Disability
Insurance (OASDI).
Disabled enrollee. An individual under age 65 who has been entitled
to disability benefits under Title II of the Social Security Act or the
Railroad Retirement system for at least 2 years and who is enrolled in
HI or SMI.
DRG Coding. The DRG categories used by hospitals on discharge
billing. See also Diagnosis-related groups (DRGs).
Dual beneficiary. An individual who is eligible for both Medicare and
Medicaid.
Durable medical equipment (DME). Items such as iron lungs,
oxygen tents, hospital beds, wheelchairs, and seat lift mechanisms that
are used in the patient’s home and are either purchased or rented.
Earnings. Unless otherwise qualified, all wages from employment and
net earnings from self-employment, whether or not taxable or covered.
Economic assumptions. See Assumptions.
Economic stabilization program. A legislative program during the
early 1970s that limited price increases.
Economy-wide private nonfarm business multifactor
productivity. A measure of real output per combined unit of labor and
capital, reflecting the contributions of all factors of production for the
authorizing taxes on the net income of most self-employed persons to
provide for OASDI and HI.
Sequester. The reduction of funds to be used for benefits or
administrative costs from a Federal account, based on the legislated
requirements.
Short range. The next 10 years.
Skilled nursing facility (SNF). An institution that is primarily
engaged in providing skilled nursing care and related services for
residents who require medical or nursing care or that is engaged in the
rehabilitation of injured, disabled, or sick persons.
SNF coinsurance. For the 21st through 100th day of extended care
services in a benefit period, a daily amount for which the beneficiary is
responsible, equal to one-eighth of the inpatient hospital deductible.
Social Security Act. Public Law 74-271, enacted on August 14, 1935,
with subsequent amendments. The Social Security Act consists of
20 titles, four of which have been repealed. The HI and SMI trust funds
are authorized by Title XVIII of the Social Security Act.
Special public-debt obligation. Securities of the U.S. Government
issued exclusively to the OASI, DI, HI, and SMI trust funds and other
Federal trust funds. Sections 1817(c) and 1841(a) of the Social Security
Act provide that the public-debt obligations issued for purchase by the
HI and SMI trust funds, respectively, shall have maturities fixed with
due regard for the needs of the funds. The usual practice in the past
has been to spread the holdings of special issues, as of every June 30,
so that the amounts maturing in each of the next 15 years are
Glossary
251
approximately equal. Special public-debt obligations are redeemable at
par at any time.
Spell of illness. A period of consecutive days, beginning with the first
day on which a beneficiary is furnished inpatient hospital or extended
care services, and ending with the close of the first period of
60 consecutive days thereafter in which the beneficiary is in neither a
hospital nor a skilled nursing facility.
Standard prescription drug coverage. Part D prescription drug
coverage that includes a deductible, coinsurance up to an initial
coverage limit, and protection against high out-of-pocket expenditures
by having reduced coinsurance provisions for individuals exceeding the
out-of-pocket threshold.
Stochastic model. An analysis involving a random variable. For
example, a stochastic model may include a frequency distribution for
one assumption. From the frequency distribution, possible outcomes
for the assumption are selected randomly for use in an illustration.
Summarized cost rate. The ratio of the present value of expenditures
to the present value of the taxable payroll for the years in a given
period. The summarized cost rate includes the cost of reaching and
maintaining a target trust fund level, known as a contingency fund
ratio. Because a trust fund level of about one year’s expenditures is
considered to be an adequate reserve for unforeseen contingencies, the
targeted contingency fund ratio used in determining summarized cost
rates is 100 percent of annual expenditures. Accordingly, the
summarized cost rate is equal to the ratio of (i) the sum of the present
value of the outgo during the period, plus the present value of the
targeted ending trust fund level, plus the beginning trust fund amount,
to (ii) the present value of the taxable payroll during the period.
Summarized income rate. The ratio of the present value of HI
income (including payroll taxes, income from taxation of Social
Security benefits, premiums, general revenue transfers for uninsured
beneficiaries, and monies from fraud and abuse control activities, but
excluding interest income) incurred during a given period to the
present value of the taxable payroll for the years in the period.
Supplemental prescription drug coverage. Coverage in excess of
the standard prescription drug coverage.
Supplementary Medical Insurance (SMI). The Medicare trust
fund comprising the Part B account, the Part D account, and the
Appendices
252
Transitional Assistance Account. The Part B account pays for a portion
of the costs of physician services, outpatient hospital services, and
other related medical and health services for voluntarily enrolled aged
and disabled individuals. The Part D account pays private plans to
provide prescription drug coverage, beginning in 2006. The
Transitional Assistance Account paid for transitional assistance under
the prescription drug card program in 2004 and 2005.
Sustainable growth rate. A system for establishing goals for the rate
of growth in Medicare Part B expenditures for physician services. The
Medicare Access and CHIP Reauthorization Act of 2015 permanently
repealed the sustainable growth rate formula.
Tax rate. The percentage of taxable earnings, up to the maximum tax
base, that is paid for the HI tax. Currently, the percentages are 1.45
for employees and employers, each. The self-employed pay 2.9 percent.
There is an additional 0.9-percent tax on earnings above $200,000 (for
those who file an individual tax return) or $250,000 (for those who file
a joint income tax return).
Taxable earnings. Taxable wages and/or self-employment income
under the prevailing annual maximum taxable limit.
Taxable payroll. A weighted average of taxable wages and taxable
self-employment income. When multiplied by the combined employee-
employer tax rate, it yields the total amount of taxes incurred by
employees, employers, and the self-employed for work during the
period.
Taxable self-employment income. Net earnings from
self-employment—generally above $400 and below the annual
maximum taxable amount for a calendar or other taxable year—less
any taxable wages in the same taxable year.
Taxable wages. Wages paid for services rendered in covered
employment up to the annual maximum taxable amount.
Taxation of benefits. Beginning in 1994, up to 85 percent of an
individual’s or a couple’s OASDI benefits are potentially subject to
Federal income taxation under certain circumstances. The revenue
derived from taxation of benefits in excess of 50 percent, up to
85 percent, is allocated to the HI trust fund.
Taxes. See Payroll taxes.
Glossary
253
Term insurance. A type of insurance that is in force for a specified
period of time.
Test of Long-Range Close Actuarial Balance. The conditions
required to meet this test are as follows: (i) The trust fund satisfies the
short-range test of financial adequacy; and (ii) the trust fund ratios
stay above zero throughout the 75-year projection period, such that
benefits would be payable in a timely manner throughout the period.
This test is applied to HI trust fund projections made under the
intermediate assumptions.
Test of Short-Range Financial Adequacy. The conditions required
to meet this test are as follows: (i) If the trust fund ratio for a fund
exceeds 100 percent at the beginning of the projection period, then it
must be projected to remain at or above 100 percent throughout the
10-year projection period; (ii) alternatively, if the fund ratio is initially
less than 100 percent, it must be projected to reach a level of at least
100 percent within 5 years (and not be depleted at any time during this
period), and then remain at or above 100 percent throughout the rest
of the 10-year period. This test is applied to HI trust fund projections
made under the intermediate assumptions.
Transitional assistance. An interim benefit for 2004 and 2005 that
provided up to $600 per year to assist low-income beneficiaries who
had no drug insurance coverage with prescription drug purchases. This
benefit also paid the enrollment fee in the Medicare Prescription Drug
Discount Card program.
Transitional Assistance Account. The separate account within the
SMI trust fund that managed revenues and expenditures for the
transitional assistance drug benefit in 2004 and 2005.
Trust fund. Separate accounts in the U.S. Treasury, mandated by
Congress, whose assets may be used only for a specified purpose. For
the HI and SMI trust funds, monies not withdrawn for current benefit
payments and administrative expenses are invested in interest-
bearing Federal securities, as required by law; the interest earned is
also deposited in the trust funds.
Trust fund ratio. A short-range measure of the adequacy of the HI
and SMI trust fund level; defined as the assets at the beginning of the
year expressed as a percentage of the outgo during the year.
Uninsured beneficiaries. HI beneficiaries who do not have
40 quarters of covered earnings but are entitled to HI coverage either
Appendices
254
because (i) they were deemed additional wage credits during the
transitional periods when the HI program began or when it was
expanded to cover Federal employees, or because (ii) they pay a
monthly premium that is intended to cover their full cost. See Part A
premium.
Unit input intensity allowance. The amount added to, or subtracted
from, the hospital input price index to yield the prospective payment
system update factor.
Valuation period. A period of years that is considered as a unit for
purposes of calculating the status of a trust fund.
Voluntary enrollees. Certain individuals, aged 65 or older or
disabled, who are not otherwise entitled to Medicare and who opt to
obtain coverage under Part A by paying a monthly premium.
Year of depletion. The first year in which a trust fund is unable to
pay full benefits when due because the assets of the fund are depleted.
List of Tables
255
TABLES
II.B1.— Medicare Data for Calendar Year 2015 ............................... 10 II.C1.— Key Assumptions, 2040-2090 ............................................... 13 II.D1.— Components of Increase in Medicare Incurred
Expenditures by Part ............................................................ 20 II.E1.— Estimated Operations of the HI Trust Fund under
Intermediate Assumptions, Calendar Years 2015-2025 ..... 26 II.F1.— Estimated Operations of the SMI Trust Fund under
Intermediate Assumptions, Calendar Years 2015-2025 ..... 33 II.F2.— Average Annual Rates of Growth in SMI and the
Economy ................................................................................. 38 II.F3.— SMI General Revenues as a Percentage of Personal and
Corporate Federal Income Taxes ......................................... 41 III.B1.— Statement of Operations of the HI Trust Fund during
Calendar Year 2015 .............................................................. 47 III.B2.— Tax Rates and Maximum Tax Bases ................................... 49 III.B3.— Comparison of Actual and Estimated Operations of the
HI Trust Fund, Calendar Year 2015 .................................... 52 III.B4.— Operations of the HI Trust Fund during Calendar Years
1970-2025 ............................................................................... 56 III.B5.— Estimated Operations of the HI Trust Fund during
Calendar Years 2015-2025, under Alternative Sets of Assumptions .......................................................................... 59
III.B6.— Ratio of Assets at the Beginning of the Year to Expenditures during the Year for the HI Trust Fund ........ 61
III.B7.— HI Cost and Income Rates .................................................... 64 III.B8.— HI Actuarial Balances under Three Sets of Assumptions .. 69 III.B9.— Components of 75-Year HI Actuarial Balance under
Intermediate Assumptions (2016-2090) .............................. 70 III.B10.— Change in the 75-Year Actuarial Balance since the
2015 Report............................................................................ 74 III.B11.— Estimated HI Income Rates, Cost Rates, and Actuarial
Balances, Based on Intermediate Estimates with Various Real-Wage Assumptions ......................................... 75
III.B12.— Estimated HI Income Rates, Cost Rates, and Actuarial Balances, Based on Intermediate Estimates with Various CPI-Increase Assumptions ..................................... 76
III.B13.— Estimated HI Income Rates, Cost Rates, and Actuarial Balances, Based on Intermediate Estimates with Various Real-Interest Assumptions ..................................... 77
III.B14.— Estimated HI Income Rates, Cost Rates, and Actuarial Balances, Based on Intermediate Estimates with Various Health Care Cost Growth Rate Assumptions ....... 79
III.C1.— Statement of Operations of the Part B Account in the SMI Trust Fund during Calendar Year 2015 ...................... 80
III.C2.— Standard Part B Monthly Premium Rates, Actuarial Rates, and Premium Rates as a Percentage of Part B Cost ........................................................................................ 82
List of Tables
256
III.C3.— Comparison of Actual and Estimated Operations of the Part B Account in the SMI Trust Fund, Calendar Year 2015 ........................................................................................ 85
III.C4.— Operations of the Part B Account in the SMI Trust Fund (Cash Basis) during Calendar Years 1970-2025 ....... 88
III.C5.— Growth in Part B Benefits (Cash Basis) through December 31, 2025 ................................................................ 90
III.C6.— Estimated Operations of the Part B Account in the SMI Trust Fund during Calendar Years 2015-2025, under Alternative Sets of Assumptions .......................................... 92
III.C7.— Estimated Part B Income and Expenditures (Incurred Basis) for Financing Periods through December 31, 2016 ........................................................................................ 95
III.C8.— Summary of Estimated Part B Assets and Liabilities as of the End of the Financing Period, for Periods through December 31, 2016 ................................................................ 96
III.C9.— Actuarial Status of the Part B Account in the SMI Trust Fund under Three Cost Sensitivity Scenarios for Financing Periods through December 31, 2016 .................. 98
III.C10.— Part B Expenditures (Incurred Basis) as a Percentage of the Gross Domestic Product ............................................. 99
III.D1.— Statement of Operations of the Part D Account in the SMI Trust Fund during Calendar Year 2015 .................... 101
III.D2.— Comparison of Actual and Estimated Operations of the Part D Account in the SMI Trust Fund, Calendar Year 2015 ...................................................................................... 104
III.D3.— Operations of the Part D Account in the SMI Trust Fund (Cash Basis) during Calendar Years 2004-2025 ..... 107
III.D4.— Growth in Part D Benefits (Cash Basis) through December 31, 2025 .............................................................. 108
III.D5.— Estimated Operations of the Part D Account in the SMI Trust Fund during Calendar Years 2015-2025, under Alternative Sets of Assumptions ........................................ 110
III.D6.— Part D Expenditures (Incurred Basis) as a Percentage of the Gross Domestic Product ........................................... 113
IV.A1.— Components of Historical and Projected Increases in HI Inpatient Hospital Payments ............................................. 117
IV.A2.— Relationship between Increases in HI Expenditures and Increases in Taxable Payroll .............................................. 121
IV.A3.— Aggregate Part A Reimbursement Amounts on an Incurred Basis ..................................................................... 124
IV.A4.— Summary of HI Alternative Projections ............................ 126 IV.B1.— Components of Increases in Total Allowed Charges per
Fee-for-Service Enrollee for Carrier Services.................... 131 IV.B2.— Incurred Reimbursement Amounts per Fee-for-Service
Enrollee for Carrier Services .............................................. 133 IV.B3.— Increases Costs per Fee-for-Service Enrollee for
IV.B4.— Incurred Reimbursement Amounts per Fee-for-ServiceEnrollee for Intermediary Services .................................... 137
IV.B5.— Fee-for-Service Enrollment and IncurredReimbursement for End-Stage Renal Disease .................. 139
IV.B6.— Aggregate Part B Reimbursement Amounts on anIncurred Basis ..................................................................... 141
IV.B7.— Part D Enrollment .............................................................. 145 IV.B8.— Key Factors for Part D Expenditure Estimates ................ 147 IV.B9.— Incurred Reimbursement Amounts per Enrollee for
Part D Expenditures ........................................................... 148 IV.B10.— Aggregate Part D Reimbursements on an Incurred
Basis ..................................................................................... 149 IV.B11.— Part D Assumptions under Alternative Scenarios for
Calendar Years 2015-2025 ................................................. 150 IV.C1.— Private Health Plan Enrollment ........................................ 156 IV.C2.— Medicare Payments to Private Health Plans, by Trust
Fund ..................................................................................... 158 IV.C3.— Incurred Expenditures per Private Health Plan
Enrollee ................................................................................ 160 V.B1.— Total Medicare Income, Expenditures, and Trust Fund
Assets during Calendar Years 1970-2025 ......................... 180 V.B2.— Key Rates of Growth for IPAB Determination .................. 182 V.B3.— Hl and SMI Incurred Expenditures as a Percentage of
the Gross Domestic Product ............................................... 184 V.B4.— Medicare Enrollment .......................................................... 186 V.B5.— Medicare Sources of Income as a Percentage of Total
Non-Interest Income ........................................................... 187 V.B6.— Comparative Growth Rates of Medicare, Private Health
Insurance, National Health Expenditures, and GDP ....... 190 V.D1.— HI and SMI Average per Beneficiary Costs ...................... 200 V.E1.— HI Cost-Sharing and Premium Amounts .......................... 203 V.E2.— SMI Cost-Sharing and Premium Amounts ....................... 205 V.E3.— Part B Income-Related Monthly Premium Amounts ........ 206 V.E4.— Part D Income-Related Monthly Premium Adjustment
Amounts ............................................................................... 209 V.F1.— Annual Revenues and Expenditures for Medicare and
Social Security Trust Funds and the Total Federal Budget, Fiscal Year 2015 .................................................... 212
V.F2.— Present Values of Projected Revenue and CostComponents of 75-Year Open-Group Obligations for HI, SMI, and OASDI ................................................................. 214
V.G1.— Unfunded HI Obligations from Program Inceptionthrough the Infinite Horizon .............................................. 218
V.G2.— Unfunded HI Obligations for Current and FutureProgram Participants through the Infinite Horizon ......... 219
V.G3.— Unfunded Part B Obligations from Program Inceptionthrough the Infinite Horizon .............................................. 220
V.G4.— Unfunded Part B Obligations for Current and FutureProgram Participants through the Infinite Horizon ......... 221
List of Tables
258
V.G5.— Unfunded Part D Obligations from Program Inception through the Infinite Horizon .............................................. 222
V.G6.— Unfunded Part D Obligations for Current and Future Program Participants through the Infinite Horizon ......... 223
V.H1.— Statement of Operations of the HI Trust Fund during Fiscal Year 2015 .................................................................. 224
V.H2.— Statement of Operations of the Part B Account in the SMI Trust Fund during Fiscal Year 2015 ......................... 225
V.H3.— Statement of Operations of the Part D Account in the SMI Trust Fund during Fiscal Year 2015 ......................... 226
V.H4.— Total Medicare Income, Expenditures, and Trust Fund Assets during Fiscal Years 1970-2025 ............................... 227
V.H5.— Operations of the HI Trust Fund during Fiscal Years 1970-2025 ............................................................................. 228
V.H6.— Operations of the SMI Trust Fund (Cash Basis) during Fiscal Years 1970-2025 ....................................................... 230
V.H7.— Operations of the Part B Account in the SMI Trust Fund (Cash Basis) during Fiscal Years 1970-2025 ........... 231
V.H8.— Operations of the Part D Account in the SMI Trust Fund (Cash Basis) during Fiscal Years 2004-2025 ........... 232
V.H9.— Assets of the HI Trust Fund, by Type, at the End of Fiscal Years 2014 and 2015 ................................................ 233
V.H10.— Assets of the SMI Trust Fund, by Type, at the End of Fiscal Years 2014 and 2015 ................................................ 234
List of Figures
259
FIGURES
I.1.— Medicare Expenditures as a Percentage of the Gross Domestic Product under Current Law and Illustrative Alternative Projections ........................................................... 4
II.D1.— Medicare Expenditures as a Percentage of the Gross Domestic Product .................................................................. 19
II.D2.— Medicare Sources of Non-Interest Income and Expenditures as a Percentage of the Gross Domestic Product ................................................................................... 21
II.E1.— HI Trust Fund Balance at Beginning of Year as a Percentage of Annual Expenditures .................................... 27
II.E2.— Long-Range HI Non-Interest Income and Cost as a Percentage of Taxable Payroll, Intermediate Assumptions .......................................................................... 30
II.F1.— SMI Expenditures and Premiums as a Percentage of the Gross Domestic Product ........................................................ 37
II.F2.— Comparison of Average Monthly SMI Benefits, Premiums, and Cost-Sharing to the Average Monthly Social Security Benefit .......................................................... 39
III.B1.— HI Expenditures and Income ............................................... 54 III.B2.— HI Trust Fund Balance at the Beginning of the Year as
a Percentage of Annual Expenditures ................................. 62 III.B3.— Estimated HI Cost and Income Rates as a Percentage of
Taxable Payroll ..................................................................... 65 III.B4.— Workers per HI Beneficiary .................................................. 67 III.B5.— Present Value of Cumulative HI Taxes Less
Expenditures through Year Shown, Evaluated under Current-Law Tax Rates and Legislated Expenditures ....... 71
III.B6.— Comparison of HI Cost and Income Rate Projections: Current versus Prior Year’s Reports ................................... 72
III.C1.— Part B Aged and Disabled Monthly Per Capita Income ..... 83 III.C2.— Premium Income as a Percentage of Part B
Expenditures ......................................................................... 89 III.C3.— Actuarial Status of the Part B Account in the SMI Trust
Fund through Calendar Year 2016 ...................................... 98 III.C4.— Comparison of Part B Projections as a Percentage of the
Gross Domestic Product: Current versus Prior Year’s Reports ................................................................................. 100
III.D1.— Comparison of Part D Projections as a Percentage of the Gross Domestic Product: Current versus Prior Year’s Reports ................................................................................. 114
V.B1.— Projected Difference between Total Medicare Outlays and Dedicated Financing Sources, as a Percentage of Total Outlays ....................................................................... 189
V.C1.— Medicare Expenditures as a Percentage of the Gross Domestic Product under Current Law and Illustrative Alternative Projections ....................................................... 197
Appendices
260
J. STATEMENT OF ACTUARIAL OPINION
It is my opinion that (1) the techniques and methodology used herein
to evaluate the financial status of the Federal Hospital Insurance
Trust Fund and the Federal Supplementary Medical Insurance Trust
Fund are based upon sound principles of actuarial practice and are
generally accepted within the actuarial profession; and (2) with the
important caveats noted below, the principal assumptions used and the
resulting actuarial estimates are, individually and in the aggregate,
reasonable for the purpose of evaluating the financial status of the
trust funds, taking into consideration the past experience and future
expectations for the population, the economy, and the program. I am a
member of the American Academy of Actuaries and I meet the
Qualification Standards of the American Academy of Actuaries to
render the actuarial opinion contained herein.
The methods for updating Medicare payment rates are specified by law
and may prove challenging to implement without serious consequences
for program access or quality. In particular, physician payment rate
updates are not expected to keep up with underlying physician costs,
and the annual price updates for most categories of non-physician
health services will be adjusted downward each year by the growth in
economy-wide productivity. Sustaining these price reductions will be
challenging for health care providers, as the best available evidence
indicates that most providers cannot improve their productivity to this
degree for a prolonged period given the labor-intensive nature of these
services.
Absent an unprecedented change in health care delivery systems and
payment mechanisms, the prices paid by Medicare for most health
services will fall increasingly short of the cost of providing such
services. If this issue is not addressed by subsequent legislation, it is
likely that access to, and quality of, Medicare benefits would
deteriorate over time for beneficiaries. Overriding the price updates
specified in current law, as lawmakers repeatedly did in the case of
physician payment rates under the SGR formula, would lead to
substantially higher costs for Medicare in the long range than those
projected in this report.
I encourage readers to review the illustrative alternative projection.
This scenario includes price update assumptions constructed to
transition from the price updates specified in current law to levels
consistent with the overall health economy, and therefore it provides
the potential magnitude of the understatement of Medicare costs
Statement of Actuarial Opinion
261
relative to the current-law projections. The illustrative alternative
scenario is summarized in appendix V.C of this report, and additional
details are available at http://www.cms.gov/Research-Statistics-